<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1996
ISSUER/INDUSTRY SHARES VALUE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMMON STOCKS -- 93.1%
- ------------------------------------------------------------------------------
GLOBAL DEPOSITORY RECEIPTS (GDR) - 0.1%
Samsung Electronics Co. Ltd. 144A
Electrical & Electronics ............ 229 $ 9,332
Samsung Electronics Co. Ltd. 144A
(Preferred Shares)
Electrical & Electronics ............ 3,610 65,341
-----------
74,673
-----------
AUSTRALIA - 1.8%
Australian & New Zealand Bank
Banking ............................. 14,100 88,874
Broken Hill Proprietary
Energy Sources ...................... 10,500 149,558
Centaur Mining & Exploration Ltd.*
Gold Mines .......................... 57,000 91,175
C.S.R. Ltd. ...........................
Multi-Industry ...................... 21,400 74,843
Hydromet Corp. Ltd. ...................
Miscellaneous Materials ............. 100,000 11,923
Pacific Dunlop
Multi-Industry ...................... 31,000 78,851
Mayne Nickless Ltd. ...................
Multi-Industry ...................... 10,700 73,142
News Corp. Ltd
Business & Public ................... 19,954 105,314
North Limited
Non-Ferrous Metals .................. 21,500 62,888
Tabcorp Holdings Ltd. .................
Multi-Industry ...................... 15,300 72,968
Woodside Petroleum Ltd. ...............
Energy Sources ...................... 12,500 91,308
-----------
900,844
-----------
CANADA - 3.2%
Alcan Aluminum Ltd. ...................
Non-Ferrous Metals .................. 2,660 89,864
Avenor Inc. Co. .......................
Forest Products & Paper ............. 4,400 65,223
Barrick Gold Corp. ....................
Gold Mines .......................... 3,500 100,314
Canadian Natural Resources Ltd.*
Energy Sources ...................... 8,800 241,615
Cominco Ltd. ..........................
Non-Ferrous Metals .................. 6,100 151,893
Franco-Nevada Mining Ltd. .............
Miscellaneous Materials ............. 4,000 183,285
Goldcorp Incorporated
Miscellaneous Materials ............. 3,800 32,604
Inco Ltd. .............................
Steel ............................... 4,250 135,775
MacMillan Bloedel Ltd. ................
Forest Products & Paper ............. 3,300 43,255
Philex Gold Inc.*
Miscellaneous Materials ............. 7,047 42,453
Placer Dome Group Inc. Com
Non-Ferrous Metals .................. 2,700 59,246
Renaissance Energy Ltd.*
Energy Sources ...................... 4,875 166,067
Talisman Energy Inc.*
Energy Sources ...................... 6,000 199,788
Westmin Resources*
Miscellaneous Materials ............. 12,000 58,272
-----------
1,569,654
-----------
DENMARK - 2.4%
Carli Gry International AS
Textiles ............................ 2,740 131,207
Danisco AS
Multi-Industry ...................... 1,950 118,543
Den Danske Bank AS
Banking ............................. 1,540 124,215
Falck AS
Multi-Industry ...................... 490 146,443
Inwear Group
Textiles ............................ 487 21,253
Kobenhavns Lufthavne
Airlines ............................ 1,225 124,809
Novo-Nordisk AS
Pharmaceuticals & Health ............ 1,085 204,508
Sophus Berendsen AS
Multi-Industry ...................... 1,420 182,775
Tele Danmark 'B'
Telephone Utilities ................. 2,655 146,523
-----------
1,200,276
-----------
FRANCE - 5.4%
Air Liquide French
Chemicals ........................... 715 111,794
AXA Company
Insurance ........................... 2,400 152,881
Axime (Ex Segin)
Financial Services .................. 1,100 127,400
BIC
Household Appliances ................ 1,300 195,232
Carrefour Supermarche
Retailing ........................... 300 195,503
CIE Generale Des Eaux
Electrical & Gas Utilities .......... 2,100 260,651
Credit Commercial de France
Banking ............................. 2,500 115,820
Credit Local de France
Financial Services .................. 1,400 122,151
Legris Industries S.A
Building & Construction ............. 2,800 118,096
Louis Vuitton-Moet Hennesy
Beverages & Tobacco ................. 600 167,822
Michelin "B" Shares
Industrial Components ............... 2,700 145,983
Printemps
Retailing ........................... 400 158,904
Salomon S.A
Household Appliances ................ 1,500 128,848
Sanofi S.A
Pharmaceuticals & Health ............ 1,300 129,485
Sodexho
Multi-Industry ...................... 300 167,358
Ste. Guilbert S.A
Business & Public ................... 1,000 195,928
Total S.A. Series B
Energy Sources ...................... 2,000 162,918
-----------
2,656,774
-----------
GERMANY - 11.4%
Bayer AG
Chemicals ........................... 10,650 434,722
Bayerische Vereinsbank AG
Banking ............................. 10,590 435,026
Buderus
Machinery & Engineering ............. 570 281,573
Daimler-Benz AG*
Automobiles ......................... 9,900 682,092
Deutche Telekom AG
Telephone Utilities ................. 18,152 382,862
Dresdner Bank AG
Banking ............................. 18,690 560,033
Gehe AG
Pharmaceuticals & Health ............ 4,670 298,989
Hornbach Holding AG
(Preferred Shares)
Retailing ........................... 3,720 265,974
Mannesmann AG
Machinery & Engineering ............. 1,080 468,222
Metro AG
Retailing ........................... 3,270 263,556
Rhoen-Klinikum
Pharmaceuticals & Health ............ 2,960 309,756
SGL Carbon AG
Non-Ferrous Metals .................. 2,289 288,636
Siemens AG
Instruments & Components ............ 2,640 124,406
Tarkett International AG
Food & Household Products ........... 7,571 151,076
Veba AG
Electrical & Gas Utilities .......... 11,265 651,663
-----------
5,598,586
-----------
HONG KONG - 1.9%
Cheung Kong
Real Estate ......................... 21,000 186,663
HSBC Holdings PLC
Banking ............................. 8,000 171,182
Hutchison Whampoa
Multi-Industry ...................... 30,000 235,632
Sung Hung Kai Properties Ltd.
Real Estate ......................... 15,000 183,755
Swire Pacific Ltd. "A"
Multi-Industry ...................... 14,000 133,493
-----------
910,725
-----------
ITALY - 3.7%
Eni Spa
Energy Sources ...................... 101,755 523,398
Fiat Spa
Automobiles ......................... 30,680 92,445
Instituto Banc San Paolo Torina
Banking ............................. 62,870 385,425
Italgas
Electrical & Gas Utilities .......... 23,810 99,698
Mediaset Spa
Business & Public ................... 17,489 80,850
Stet D Risp Non Cvt ...................
Telephone Utilities ................. 45,903 154,987
Telecom Italia Mobile
Telephone Utilities ................. 148,894 377,388
Unicem Spa
Building Materials .................. 12,000 78,312
-----------
1,792,503
-----------
JAPAN - 31.3%
Asahi Bank Ltd.
Banking ............................. 36,000 320,179
Autobacs Seven
Automobiles ......................... 3,000 212,158
Canon Inc. .
Electrical & Electronics ............ 24,000 530,524
Chugai Pharm Co.
Pharmaceuticals & Health ............ 35,000 293,152
Dai-Ichi Kangyo Bank
Banking ............................. 20,000 288,403
DDI Corporation
Telephone Utilities ................. 35 231,499
Denso Corp.
Automobiles ......................... 25,000 602,279
Ebaba Corporation
Machinery & Engineering ............. 40,000 521,544
Fuji Bank
Banking ............................. 20,000 291,857
Fujitsu Ltd.
Instruments & Components ............ 26,000 242,466
Industrial Bank of Japan
Banking ............................. 14,360 249,233
Ito Yokado Corp.
Retailing ........................... 10,000 435,196
Japan Tobacco Inc.
Beverages & Tobacco ................. 56 379,588
Kawasaki Steel
Steel ............................... 136,000 391,055
Kyocera Corp.
Instruments & Components ............ 6,000 374,061
Marubeni Corp.
International Trade ................. 73,000 313,911
Mitsubishi Estate Co. Ltd.
Real Estate ......................... 40,000 411,019
Mitsubishi Heavy
Machinery & Engineering ............. 70,000 556,084
Mitsubishi Trust
Financial Services .................. 21,000 281,063
National House Industrial
Building & Construction ............. 23,000 305,845
Nippon Sheet Glass
Miscellaneous Materials ............. 50,000 177,445
NKK Corporation
Steel ............................... 163,000 367,352
Nomura Securities Co. Ltd.
Financial Services .................. 26,000 390,640
Ohbayashi-Gumi Corp.
Building & Construction ............. 70,000 472,671
Olympus Optical
Household Appliances ................ 22,000 208,963
Osaka Gas Co. Ltd.
Electrical & Gas Utilities .......... 115,000 314,783
Sankyo Co. Ltd.
Pharmaceutical & Health ............. 22,000 623,088
Sanyo Electric Co. Ltd.
Instruments & Components ............ 75,000 310,854
Seven Eleven Japan Ltd.
Retailing ........................... 8,000 468,355
Sharp Corp.
Electrical & Electronics ............ 16,000 227,959
Shin-Etsu Chemical Co.
Chemicals ........................... 16,800 306,088
Sumitomo Bank
Banking ............................. 19,000 273,983
Sumitomo Electric Industries
Industrial Components ............... 34,000 475,607
TDK Corp.
Instruments & Components ............ 10,000 651,930
Teijin Limited
Textiles ............................ 55,000 240,307
The Bank of Tokyo Mitsubishi
Banking ............................. 23,050 427,921
Tobu Railroad Co. Ltd.
Road & Rail Transport ............... 47,000 230,109
Tohoku Electric Power
Electrical & Gas Utilities .......... 18,000 357,483
Tokio Marine & Fire
Insurance ........................... 45,000 423,539
Tokyu Corp.
Real Estate ......................... 25,000 142,043
Toyota Motor Co.
Automobiles ......................... 25,000 718,850
Yamato Transport Co. Ltd.
Road & Rail Transport ............... 28,000 290,130
-----------
15,331,216
-----------
MALAYSIA - 0.2%
Leader Universal Holdings Ltd.
Industrial Components ............... 45,999 96,543
-----------
NETHERLANDS - 5.2%
Akzo Dutch
Chemicals ........................... 2,000 273,385
Elsevier
Business & Public Services .......... 17,000 287,519
IHC Caland NV
Building & Construction ............. 4,500 257,254
ING Groep NV
Insurance ........................... 7,000 252,187
Royal Dutch Petroleum Co. ADRs
Energy Sources ...................... 4,500 789,487
Unilever NV
Food & Household Products ........... 1,700 300,910
Vendex International NV
Retailing ........................... 5,000 214,016
Verenigde Nederlandse
Business & Public ................... 8,000 167,275
-----------
2,542,033
-----------
NORWAY - 1.6%
Kvaerner
Machinery & Engineering ............. 1,330 64,095
Norsk Hydro
Energy Sources ...................... 7,225 387,988
Orkla AS A-Aksjer
Multi-Industry ...................... 1,840 127,653
Petroleum Geo Services
Energy Sources ...................... 2,580 100,108
Schibsted
Business & Public ................... 2,545 46,412
Uni Storebrand AS-A
Machinery & Engineering ............. 12,455 71,523
-----------
797,779
-----------
SPAIN - 2.3%
Acerinox SA
Multi-Industry ...................... 542 78,320
Alba Corp. Finance
Machinery & Engineering ............. 566 57,199
Banco Bilbao Vizcaya
Banking ............................. 3,759 202,970
Banco Intercontinental
Banking ............................. 531 82,334
Corporacion Mapfre
Insurance ........................... 1,352 82,376
Gas Natural SDG S.A.
Electrical & Gas Utilities .......... 496 115,380
Iberdrola S.A.
Electrical & Gas Utilities .......... 14,894 211,091
Sol Melia S.A.
Leisure & Tourism ................... 2,288 81,951
Telefonica
Telephone Utilities ................. 8,744 203,066
-----------
1,114,687
-----------
SWEDEN - 1.3%
Assa Abloy AB-B
Multi-Industry ...................... 9,085 165,433
Autoliv AB
Automobiles ......................... 2,320 101,867
Ericsson AB
Electrical & Electronics ............ 6,190 191,800
Hennes & Mauritz AB
Retailing ........................... 810 112,289
Kinnevik AB
Machinery & Engineering ............. 1,640 45,276
-----------
616,665
-----------
UNITED KINGDOM - 21.3%
3I Group PLC
Financial Services .................. 35,486 295,983
BAT Industries
Multi-Industry ...................... 27,750 230,508
British Aerospace PLC
Aerospace & Defense ................. 18,356 402,411
British Petroleum Co. PLC
Energy Sources ...................... 50,510 605,992
British Telecommunications PLC
Telephone Utilities ................. 59,592 403,150
Burmah Castrol PLC
Energy Sources ...................... 15,575 293,695
Cadbury Schwepps PLC
Food & Household Products ........... 32,408 273,363
Commercial Union Assurance
Insurance ........................... 16,800 196,666
Courtaulds PLC
Chemicals ........................... 28,498 192,794
Dixons Group PLC
Retailing ........................... 11,632 108,177
Edinburgh Small CoTrust
Financial Services .................. 95,000 157,825
Glaxo Wellcome PLC
Pharmaceuticals & Health ............ 32,267 523,900
Glynwed International PLC
Machinery & Engineering ............. 47,158 271,378
Grand Metropolitan PLC
Beverages & Tobacco ................. 36,828 290,146
HSBC Holdings PLC
Banking ............................. 16,595 371,479
Inchape PLC
Business & Public Services .......... 65,486 303,948
Kingfisher PLC
Retailing ........................... 34,701 376,801
Lloyds TSB Group PLC
Banking ............................. 90,184 664,942
Logica PLC
Business & Public Services .......... 19,514 306,142
London International Group
Pharmaceuticals & Health ............ 110,086 311,098
Marks & Spencer PLC
Retailing ........................... 33,612 282,655
National Power PLC
Electrical & Gas Utilities .......... 24,500 205,190
Pilkington Brothers PLC
Building Materials .................. 63,584 172,063
Prudential Corp.
Insurance ........................... 40,758 343,098
Royal & Sun Alliance Ins.
Insurance ........................... 38,247 292,155
RTZ
Non-Ferrous Metals .................. 8,484 136,297
Sainsbury (J) PLC
Retailing ........................... 38,183 253,737
Severn Trent ORD
Electrical & Gas Utilities .......... 12,500 142,582
Smiths Industries PLC
Machinery & Engineering ............. 17,164 235,762
Standard Chartered PLC
Banking ............................. 11,287 139,378
Thorn EMI PLC
Leisure & Tourism ................... 40,551 174,671
Tomkins PLC
Multi-Industry ...................... 64,934 300,274
WPP Group
Business & Public ................... 54,830 237,586
William Holdings PLC
Multi-Industry ...................... 47,873 281,643
Wolseley PLC
Building Materials .................. 41,097 326,595
Yorkshire Electricity PLC
Electrical & Gas Utilities .......... 7,770 107,127
Zeneca Group PLC
Pharmaceuticals & Health ............ 9,326 263,149
-----------
10,474,360
-----------
TOTAL COMMON STOCKS
(Identified Cost $44,364,894) ....... 45,677,318
-----------
- ------------------------------------------------------------------------------
CORPORATE BONDS--1.7%
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
---------
Sampo Corporation
2.625% due 11/23/01
(Identified Cost $700,000) .......... 700,000 806,750
-----------
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--3.2%
- ------------------------------------------------------------------------------
Morgan Stanley Repurchase Agreement
5.90% due 1/2/97 proceeds at
maturity $1,587,174 (collateralized
by $683,315 U.S. Treasury Note
10.625% due 8/15/15, $693,328
U.S. Treasury Note 12.00% due
8/15/13 and $243,956 U.S. Treasury
Note 9.125% due 5/15/18) ............ 1,587,174
-----------
TOTAL INVESTMENTS
(Identified Cost $46,652,068) ....... 98.0% 48,071,242
OTHER ASSETS,
LESS LIABILITIES .................... 2.0% 984,999
----- -----------
NET ASSETS ............................ 100.0% $49,056,241
===== ===========
*Non income producing.
ADRs - American Depository Receipts.
See notes to financial statements.
<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
ASSETS:
Investments at value (Note 1A) (Identified Cost, $46,652,068).... $48,071,242
Foreign currency, at value (Cost, $653,825)...................... 661,554
Cash............................................................. 100
Receivable for investments sold ................................. 1,972,265
Dividends and interest receivable................................ 64,126
-----------
Total assets................................................. 50,769,287
-----------
LIABILITIES:
Payable for securities purchased................................. 1,668,852
Payable to affiliates--Investment advisory fees (Note 2)......... 44,194
-----------
Total liabilities............................................ 1,713,046
-----------
NET ASSETS ...................................................... $49,056,241
===========
REPRESENTED BY:
Paid-in capital for beneficial interests......................... $49,056,241
===========
See notes to financial statements
<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $133,886)................. $ 643,619
Interest............................................................... 188,573
----------
Total investment income.............................................. $ 832,192
EXPENSES:
Investment advisory fees (Note 2)...................................... 472,204
Administrative fees (Note 3)........................................... 23,610
Expense fees (Note 6).................................................. 39,757
----------
Total expenses....................................................... 535,571
Less aggregate amount waived by Administrator (Note 3)............... (10,363) 525,208
---------- ----------
Net investment income................................................ 306,984
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions.................. 3,860,977
Net realized loss on foreign exchange currencies transactions.......... (228,907)
----------
Net realized gain (loss)............................................. 3,632,070
----------
Unrealized appreciation (depreciation) of investments--
Beginning of period................................................. 3,807,712
End of period....................................................... 1,419,174 (2,388,538)
----------
Translation of other assets and liabilities denominated
in foreign currencies--net........................................... 9,301
----------
Net change in unrealized appreciation (depreciation)................ (2,379,237)
----------
Net realized and unrealized gain on investments..................... 1,252,833
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $1,559,817
==========
</TABLE>
See notes to financial statements
<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income .................................................................. $ 306,984 $ 202,735
Net realized gain (loss) on investments and foreign exchange transactions .............. 3,632,070 3,779,752
Net change in unrealized appreciation (depreciation) of investments and
foreign currency exchange ............................................................ (2,379,237) 1,878,598
------------ ------------
Net increase (decrease) in net assets resulting from operations .................... 1,559,817 5,861,085
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ............................................................ 28,377,160 14,645,582
Value of withdrawals ................................................................... (20,994,299) (12,545,928)
------------ ------------
Net increase in net assets from capital transactions ............................... 7,382,861 2,099,654
------------ ------------
NET INCREASE IN NET ASSETS: ............................................................ 8,942,678 7,960,739
NET ASSETS:
Beginning of period .................................................................... 40,113,563 32,152,824
------------ ------------
End of period .......................................................................... $ 49,056,241 $ 40,113,563
============ ============
</TABLE>
See notes to financial statements
<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MAY 1, 1994
YEAR ENDED DECEMBER 31, (COMMENCEMENT
---------------------------- OF OPERATIONS) OF
1996 1995 DECEMBER 31, 1994
-------- -------- ----------------
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ..................... $49,056 $40,114 $32,153
Ratio of expenses to average net assets ....................... 1.11% 1.20% 1.22%*
Ratio of net investment income to average net assets .......... 0.65% 0.59% 0.60%*
Portfolio turnover ............................................ 109% 51% 25%
Average commission rate per share (A) ......................... $0.0321 N/A N/A
Note: If the Agents of the Portfolio had not voluntarily waived a portion of their fees for the periods indicated, the ratios
would have been as follows:
Expenses to average net assets ................................ 1.13% N/A N/A
Net investment income to average net assets ................... 0.63% 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>
International Equity Portfolio
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
International Equity 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 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 following significant accounting policies consistently followed by the
Portfolio are as follows:
A. INVESTMENT SECURITY VALUATIONS -- Equity securities in the portfolio are
valued at the last sale price on the exchange on which they are primarily
traded, or at the quoted bid price for securities in which there were no sales
during the day, or for unlisted securities not reported on the NASDAQ system.
Securities listed on a foreign exchange are valued at the last quoted sale price
available. Bonds and other fixed income securities (other than short-term
obligations maturing in sixty days or less) in the portfolio are valued on the
basis of valuations furnished by a pricing service approved by the Board of
Trustees, the use of which has been approved by the Trustees. In making such
valuations, the pricing service utilizes both dealer-supplied valuations and
electronic data processing techniques which take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or
exchanges or over-the-counter prices. Short-term obligations maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Portfolio securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith by
or at the direction of the Trustees. Trading in securities on most foreign
exchanges and over-the-counter markets is normally completed before the close of
the New York Stock Exchange and may also take place on days which the New York
Stock Exchange is closed. If events materially affecting the value of foreign
securities occur between the time when the exchange on which they are traded
closes and the time of fund valuation, such securities will be valued at fair
value in accordance with procedures established by and under the general
supervision of the Trustees.
B. FOREIGN CURRENCY TRANSLATION -- The accounting records of the Portfolio are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars at the current rate of exchange to determine the value of investments,
assets and liabilities. Purchases and sales of securities, and income and
expenses are translated at the prevailing rate of exchange on the respective
dates of such transactions. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Translation of foreign currency
includes net exchange gains and losses, disposition of foreign currency and the
difference between the amount of investment income, expenses and foreign taxes
withheld recorded and the actual amount received or paid.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Portfolio may enter into
forward foreign currency exchange contracts ("contracts") in connection with
planned purchases or sales of securities or to hedge the U.S. dollar value of
portfolio securities denominated in a particular currency. The Portfolio could
be exposed to risks if the counter-parties to the contracts are unable to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. Dollar. Forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as unrealized
gains or losses until the contract settlement date.
D. ACCOUNTING FOR INVESTMENTS -- Securities transactions are accounted for on
the trade date. Realized gains and losses on security transactions are
determined on the identified cost method. Dividend income and other
distributions from portfolio securities are recorded on the ex-dividend date.
Dividend income is recorded net of foreign taxes withheld where recovery of such
taxes is not assured. Interest income is accrued daily.
E. U.S. FEDERAL INCOME AND OTHER TAXES -- The Portfolio is considered a
partnership under the U.S. Internal Revenue Code. Accordingly, no provision for
federal income taxes is necessary. The Portfolio may be subject to taxes imposed
by countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated.Taxes are accrued and applied to net
investment income and net realized gains as such income and/or gains are earned.
F. 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.
G. 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 custidian bank's
vault, all securities held as collateral in support of repurchase agreements.
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.
(2) INVESTMENT ADVISORY FEES
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $472,204 for the year ended December
31, 1996. The investment advisory fees are computed at the annual rate of 1.00%
of the Portfolio's average daily net assets.
(3) ADMINISTRATIVE FEES
Under the terms of an Administrative Services Agreement, the administrative
services fees paid to the Administrator, as compensation for overall
administrative services including 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 $23,610 of which $10,363 was voluntarily waived,
for the year ended December 31, 1996. 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 officers and a Trustee of the Portfolio
are officers and directors of the Administrator or its affiliates.
(4) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term investments, aggregated $58,934,495 and
$46,894,990, respectively.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/(depreciation) in value of the investment
securities owned at December 31, 1996 as computed on a federal income tax
basis, are as follows:
Aggregate cost ......................................... $ 46,662,482
============
Gross unrealized appreciation .......................... $ 4,323,917
Gross unrealized depreciation .......................... (2,915,157)
------------
Net unrealized appreciation ............................ $ 1,408,760
============
(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 expenses of
the Portfolio less expenses waived by the Administrator would on an annual basis
exceed an agreed upon rate, which as of July 1, 1996 is 1.00% of average daily
net assets.
(7) FINANCIAL INSTRUMENTS
The Portfolio may trade financial instruments with off-balance sheet risk in the
normal course of its investing activities and to assist in managing exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when related and offsetting transactions are considered. No such instruments
were held at December 31, 1996.
(8) LINE OF CREDIT
The Portfolio, along with the other Landmark Funds, entered into an ongoing
agreement with a bank which allows the Landmark 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 year ended December 31,
1996, the commitment fee allocated to the Portfolio was $194. Since the line of
credit was established, there have been no borrowings.
<PAGE>
International Equity Portfolio
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, INTERNATIONAL EQUITY PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of International Equity Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at December 31, 1996 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, 1996 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, 1996, 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 4, 1997
