<PAGE>
Balanced Portfolio
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 1997
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES--0.6%
Interpublic Group, Inc. ...................... 31,700 $ 1,579,056
------------
CONSUMER DURABLES--0.8%
Leggett & Platt Inc. ......................... 47,000 1,968,125
------------
CONSUMER NON-DURABLES--7.0%
Clorox Co. ................................... 34,700 2,743,469
Coca-Cola Co. ................................ 81,800 5,449,925
Gillette Co. ................................. 37,000 3,716,188
Mattel Inc. .................................. 48,950 1,823,388
Procter & Gamble Co. ......................... 48,600 3,878,888
------------
17,611,858
------------
CONSUMER SERVICES--5.2%
Carnival Corp. ............................... 61,300 3,394,487
Clear Channel Communications* ................ 39,900 3,169,556
Cracker Barrel Old Country Store ............. 61,700 2,059,238
Gannett Inc. ................................. 46,250 2,858,828
Walt Disney Co. .............................. 15,300 1,515,656
------------
12,997,765
------------
ELECTRONICS/TECHNICAL SERVICES--6.1%
Adaptec Inc.* ................................ 30,200 1,121,175
Automatic Data Processing .................... 38,900 2,387,487
Cisco Systems Inc.* .......................... 50,400 2,809,800
Computer Association International Inc. ...... 51,900 2,744,212
Intel Corp. .................................. 31,600 2,219,900
Parametric Technology Corp.* ................. 32,700 1,549,163
Sun Guard Data Systems ....................... 81,000 2,511,000
------------
15,342,737
------------
FINANCE --8.9%
American International Group Inc. ............ 15,900 1,729,125
Chubb Corp. .................................. 31,900 2,412,437
Federal National Mortgage Association ........ 66,800 3,811,775
Franklin Resources Inc. ...................... 16,000 1,391,000
MGIC Investment Corp. ........................ 33,400 2,221,100
Norwest Corp. ................................ 53,000 2,047,125
State Street Corp. ........................... 36,600 2,129,663
Travelers Group Inc. ......................... 56,999 3,070,821
U.S. Bancorp ................................. 14,800 1,656,675
Zions Bancorp ................................ 40,200 1,824,075
------------
22,293,796
------------
HEALTH SERVICES/TECHNOLOGY--16.2%
Abbott Laboratories .......................... 48,200 3,160,112
Ameritech Corp. .............................. 51,800 4,169,900
Cardinal Health Inc. ......................... 30,600 2,298,825
HBO & Co. .................................... 52,000 2,496,000
Health Management Associates* ................ 75,650 1,910,163
Johnson & Johnson ............................ 51,050 3,362,919
Lilly, Eli & Co. ............................. 43,500 3,028,688
Lincare Holdings Inc.* ....................... 52,560 2,995,920
Merck & Co. .................................. 54,200 5,758,750
Pfizer Inc. .................................. 69,950 5,215,647
Schering Plough Corp. ........................ 49,000 3,044,125
Warner Lambert Co. ........................... 27,000 3,348,000
------------
40,789,049
------------
INDUSTRIAL SERVICES--0.5%
Schlumberger Ltd. ............................ 17,000 1,368,500
------------
PRODUCER MANUFACTURING--6.1%
Deere & Co. .................................. 27,770 1,619,338
General Electric Co. ......................... 116,000 8,511,500
Illinois Tool Works .......................... 50,900 3,060,363
Xerox Corp. .................................. 28,500 2,103,656
------------
15,294,857
------------
RETAIL TRADE--8.4%
Bed Bath and Beyond Inc.* .................... 65,200 2,510,200
Consolidated Stores* ......................... 45,500 1,999,156
Gap Inc. ..................................... 53,850 1,908,309
Home Depot ................................... 77,350 4,553,981
Kohls Corp.* ................................. 35,700 2,432,062
Wal Mart Stores Inc. ......................... 122,700 4,838,981
Walgreen Co. ................................. 88,470 2,775,746
------------
21,018,435
------------
TRANSPORTATION--1.0%
Southwest Airlines Co. ....................... 99,800 2,457,575
------------
TOTAL COMMON STOCK
(Identified Cost $125,308,274) .............. 152,721,753
------------
- --------------------------------------------------------------------------------
FIXED INCOME - 38.6%
PRINCIPAL
AMOUNT
-------
ASSET BACKED SECURITIES-2.6%
Aames Mortgage Trust
6.59% due 6/15/24 ............................ $1,040,000 $ 1,043,250
California Infrastructure 6.38% due 9/25/08 .. 725,000 732,363
Contimortgage Home Equity Loan 6.87% due 3/15/24 1,040,000 1,051,538
Green Tree Financial Corp. 8.05 % due 10/15/27 3,500,000 3,692,500
------------
6,519,651
------------
DOMESTIC CORPORATIONS-2.9%
Associates Corp. N.A. 5.96% due 5/15/37 ...... 1,750,000 1,799,648
Atlantic City Electric Co. 7.01% due 8/23/02 . 1,380,000 1,425,126
Equitable Life Assurance 6.95% due 12/01/05 .. 1,375,000 1,404,686
International Business Machines 6.22% due 8/01/27 1,700,000 1,714,178
Liberty Mutual Insurance Co. 8.20% due 5/04/07 830,000 919,848
------------
7,263,486
------------
MORTGAGE OBLIGATIONS--13.1%
Collateralized Mortgage Obligations-8.4%
Asset Securitization Corp. Series 95
7.384% due 8/13/29 .......................... 2,500,000 2,642,578
Asset Securitization Corp. Series 97
6.85% due 2/14/41 ........................... 600,000 614,531
Federal Home Loan Mortgage Corp. .............
6.00% due 3/15/09 ........................... 1,156,012 1,105,066
GMAC Commercial Mortgage
6.83% due 12/15/03 .......................... 2,351,704 2,390,286
7.22% due 10/15/28 .......................... 1,000,000 1,051,875
GTE North Inc. ...............................
6.40% due 2/05/15 ........................... 665,000 666,024
Independent National Mortgage Corp. ..........
7.50% due 9/25/14 ........................... 1,328,719 1,335,774
Lehman Brothers First Union
6.479% due 11/18/29 ......................... 991,563 996,985
6.65% due 11/18/29 .......................... 2,500,000 2,529,297
Merrill Lynch Mortgage Corp. .................
6.95% due 6/18/29 ........................... 1,385,213 1,413,783
Morgan Stanley Capital Investment Inc. .......
6.44% due 1/15/28 ........................... 1,000,000 1,002,969
Nomura Asset Securitization Corp. ............
8.15% due 4/04/27 ........................... 2,000,000 2,186,875
Residential Asset Securitization Trust
7.00% due 2/25/08 ........................... 1,218,952 1,225,047
Structured Asset Securities Corp. ............
6.79% due 10/15/34 .......................... 1,893,138 1,935,142
------------
21,096,232
------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS-1.5%
Federal Home Loan Mortgage Corp. .............
8.50% due 6/01/01 ........................... 16,458 16,779
9.50% due 2/01/01 ........................... 9,125 9,471
Federal National Mortgage Association
7.50% due 10/01/25 .......................... 265,969 272,700
7.50% due 11/01/25 .......................... 3,360,580 3,445,636
9.00% due 11/01/01 .......................... 14,584 14,992
------------
3,759,578
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-3.2%
Government National Mortgage Association
5.50% due 4/16/25 ........................... 1,600,000 1,466,000
7.25% due 10/16/22 .......................... 5,683,639 5,767,074
8.25% due 7/15/05 ........................... 713,603 739,694
------------
7,972,768
------------
Total Mortgage Obligations ................... 32,828,578
------------
YANKEE BONDS-1.3%
Embotelladora Andina SA 7.00 % due 10/01/07 .. 1,180,000 1,144,022
Interamerica Development Bank 6.95% due 8/01/26 2,000,000 2,169,840
------------
TOTAL YANKEE BONDS ........................... 3,313,862
------------
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS--18.7%
United States Treasury Bonds-3.3%
6.625% due 2/15/27 .......................... 6,750,000 7,327,935
6.375% due 8/15/27 .......................... 1,000,000 1,054,690
------------
8,382,625
------------
UNITED STATES TREASURY NOTES-14.7%
5.875% due 11/15/99 ......................... 200,000 200,718
6.625% due 6/30/01 .......................... 5,850,000 6,011,812
6.625% due 4/30/02 .......................... 5,500,000 5,680,455
6.50% due 5/31/02 ........................... 8,500,000 8,748,370
5.875% due 9/30/02 .......................... 3,000,000 3,016,410
5.75% due 11/30/02 .......................... 2,100,000 2,101,638
5.875% due 2/15/04 .......................... 7,000,000 7,061,250
6.50% due 10/15/06 .......................... 4,000,000 4,188,120
------------
37,008,773
------------
United States Agency Obligations-0.7%
Tennessee Valley Authority
5.88% due 4/01/36 ........................... 1,750,000 1,810,900
------------
TOTAL UNITED STATES
GOVERNMENT & AGENCY OBLIGATIONS ............. 47,202,298
------------
TOTAL FIXED INCOME
(Identified Cost $94,448,469)................ 97,127,875
------------
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 1,2%
Aubrey G. Lanston Repurchase Agreement
6.50% due 1/02/98, proceeds
at maturity $2,651,957 (collateralized
by $2,162,000 U.S. Treasury Bonds
valued at $2,679,191 10.00% due 5/15/10) .... 2,651,000
U.S. Treasury Bills
5.13% due 1/22/98 ........................... 122,632
5.33% due 2/19/98 ........................... 94,311
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost $2,867,943) ................ 2,867,943
------------
TOTAL INVESTMENTS
(Identified Cost $222,624,686) .............. 100.6% 252,717,571
OTHER ASSETS
LESS LIABILITIES ............................ (0.6) (1,523,235)
------------
NET ASSETS ................................... 100.0% $251,194,336
===== ============
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
Futures contracts which were open at December 31,1997 are as follows:
Aggregate
Number of Face Value Expiration Unrealized
Contracts Contracts of Contracts Date Gain/Loss
- --------- --------- ------------ ---------- ----------
U.S. Treasury
20-year Bond
(Sell) 15 1,500,000 March 1998 $(4,219)
* Non-income producing
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $222,624,686) ................ $252,717,571
Cash ............................................. 54
Dividends and interest receivable ................ 1,343,766
Other assets ..................................... 1,012
------------
Total assets .................................... 254,062,403
------------
LIABILITIES:
Payable for investments purchased ................ 2,742,347
Payable to affiliates--Investment advisory fees (Note 2) 84,952
Payable for daily variation on futures contracts . 8,906
Accrued expenses and other liabilities ........... 31,862
------------
Total liabilities ............................... 2,868,067
------------
NET ASSETS ....................................... $251,194,336
============
REPRESENTED BY:
Paid-in capital for beneficial interests ......... $251,194,336
============
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
INVESTMENT INCOME:
Interest ..................................... $7,063,103
Dividends .................................... 1,548,998
----------
Total income ................................. $ 8,612,101
EXPENSES:
Investment advisory fees (Note 2) ............ 998,042
Administrative fees (Note 3) ................. 124,755
Expense fees (Note 6) ........................ 249,497
----------
Total expenses ............................... 1,372,294
------------
Net investment income ........................ 7,239,807
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions
and futures contracts ...................... 34,083,761
Unrealized appreciation (depreciation) of
investments and futures contracts
Beginning of period ........................ 23,092,617
End of period .............................. 30,088,666
----------
Net change in unrealized appreciation
(depreciation) of investments and
futures contracts .......................... 6,996,049
------------
Net realized and unrealized gain on
investments and futures contracts ......... 41,079,810
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................. $ 48,319,617
============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .............................................. $ 7,239,807 $ 8,718,839
Net realized gain from investment transactions and futures contracts 34,083,761 17,739,660
Net change in unrealized appreciation (depreciation) of investments
and futures contracts ............................................ 6,996,049 (7,087,703)
------------- -------------
Net increase in net assets resulting from operations .............. 48,319,617 19,370,796
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ........................................ 7,417,240 18,210,247
Value of withdrawals ............................................... (52,068,589) (41,573,741)
------------- -------------
Net decrease in net assets from capital transactions .............. (44,651,349) (23,363,494)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS .............................. 3,668,268 (3,992,698)
NET ASSETS:
Beginning of period ................................................ 247,526,068 251,518,766
------------- -------------
End of period ...................................................... $ 251,194,336 $ 247,526,068
============= =============
</TABLE>
Balanced Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
May 1, 1994
Year Ended December 31, (Commencement
------------------------------- of Operations) to
1997 1996 1995 December 31, 1994
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) .......... $251,194 $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 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover ................................. 134% 241% 210% 105%
Average commission rate per share (A) .............. $ 0.0617 $ 0.0589 N/A N/A
(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.
* Not annualized
</TABLE>
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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 $998,042 for the year ended December
31, 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
$124,755 for the year ended December 31, 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 $343,925,191 and $360,783,716, respectively, for the year ended
December 31, 1997. Purchases and sales of U.S. Government securities aggregated
to $89,413,600 and $114,602,631, respectively.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
Aggregate cost $222,718,879
============
Gross unrealized appreciation $ 31,666,134
Gross unrealized depreciation (1,667,442)
------------
Net unrealized appreciation $ 29,998,692
============
(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 year ended December 31, 1997, the
commitment fee allocated to the Portfolio was $1,005. Since the line of credit
was established, there have been no borrowings.
Balanced Portfolio
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, BALANCED PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Balanced Portfolio (the "Portfolio"), a series
of The Premium Portfolios, as at December 31, 1997 and the related statements of
operations and of changes in net assets and the financial highlights for the
periods indicated. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1997, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 2, 1998
