<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997
- --------------------------------------------------------------------------------
Issuer/Industry Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--94.7%
- --------------------------------------------------------------------------------
American Depository Receipts/ ADR's-1.2%
Empressa ICA Sociedad
Building & Construction ................... 2,891 $ 47,521
Lukoil Oil Co.
Energy Sources ............................ 2,200 202,400
Surgutneftegaz
Energy Sources ............................ 7,500 75,975
Telefonos de Mexico
Telephone Utilities ....................... 1,370 76,805
----------
402,701
----------
Australia-2.0%
Australia & New Zealand Bank Corp.
Banking ................................... 14,417 95,278
Broken Hill Proprietary
Energy Sources ............................ 10,500 97,518
C.S.R. Ltd.
Multi-Industry ............................ 21,400 72,527
Centaur Mining &
Exploration Ltd.*
Gold Mines ................................ 57,000 20,061
Mayne Nickless Ltd.
Multi-Industry ............................ 10,912 57,677
News Corp. Ltd.
Business & Public Services ................ 20,063 110,754
North Ltd.
Non-Ferrous Metals ........................ 21,500 56,639
Pacific Dunlop Ltd.
Multi-Industry ............................ 31,000 65,664
Woodside Petroleum Ltd.
Energy Sources ............................ 12,500 88,149
----------
664,267
----------
Brazil-2.7%
Aracruz Celulos SA
Forest Products & Paper ................... 29,001 40,018
Banco Bradesco SA-Preferred
Banking ................................... 5,910,953 56,740
CIA Cervejaria Brahma
Beverages & Tobacco ....................... 66,181 44,474
CIA Energetica de Minas
Electrical & Gas Utilities ................ 1,039,347 45,157
CIA Vale do Rio
Doce-Preferred Steel ...................... 4,952 49,806
Light Servicos de Electrcid
Electrical & Gas Utilities ................ 142,000 59,161
Petroleo Brasileiro SA
Energy Sources ............................ 348,015 81,387
Telecommunicacoes Brasileiras
Telephone Utilities ....................... 3,530,000 402,642
Telecommunicacoes
de Sao-Preferred
Telephone Utilities ....................... 251,937 67,043
Telecommunicacoes
de Sao-Rights
Telephone Utilities ....................... 10,561 2,810
Usiminas
Steel ..................................... 4,583 27,103
White Martins SA
Chemicals ................................. 18,318 26,754
----------
903,095
----------
Denmark-1.9%
Carli Gry International AS
Textiles .................................. 2,740 153,957
Den Danske Bank
Banking ................................... 1,000 133,248
Falck AS
Multi-Industry ............................ 1,450 67,189
Jyske Bank AS
Banking ................................... 800 97,491
Novo-Nordisk AS-Class B
Pharmaceuticals & Health .................. 1,245 178,068
----------
629,953
----------
Finland-0.5%
Nokia AB
Telephone Utilities ....................... 2,372 168,404
----------
13
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997 continued
- --------------------------------------------------------------------------------
Issuer/Industry Shares Value
- --------------------------------------------------------------------------------
France-8.6%
AXA-UAP
Insurance ................................. 2,234 $ 172,863
Accor French
Leisure & Tourism ......................... 939 174,585
Alcatel Alsthom
Electrical & Electronics .................. 1,504 191,171
Atos SA (Ex Axime)
Financial Services ........................ 1,396 179,994
BNP
Banking ................................... 3,184 169,238
CIE Fin Paribas
Financial Services ........................ 2,061 179,098
CIE Generale Des Eaux
Electrical & Gas Utilities ................ 1,332 185,907
Canal Plus
Business & Public Services ................ 1,034 192,248
Compagnie de Saint Gobain
Multi-Industry ............................ 1,273 180,845
France Telecom
Multi-Industry ............................ 3,945 143,091
Pinault-Printemps
Retailing ................................. 350 186,733
Rhone Poulenc
Chemicals ................................. 3,964 177,568
Sanofi SA
Pharmaceuticals & Health .................. 1,707 190,029
Societe Fonciere Lyonnaise
Multi-Industry ............................ 1,743 204,752
Societe Nationale Elf Aquitaine
Energy Sources ............................ 2,415 280,884
Total SA-Class B
Energy Sources ............................ 841 91,527
----------
2,900,533
----------
Germany-9.1%
Allianz AG
Insurance ................................. 2,266 586,985
Bayer AG
Chemicals ................................. 7,200 $ 268,957
Bayerische Vereinsbank AG
Banking ................................... 7,260 475,000
Dresdner Bank AG
Banking ................................... 7,316 336,485
Metro AG
Retailing ................................. 4,892 175,399
Preussag AG
Multi-Industry ............................ 610 186,159
Rhoen-Klinikum
Pharmaceuticals & Health .................. 1,214 118,771
SGL Carbon AG
Non-Ferrous Metals ........................ 1,173 151,275
Siemens AG
Instruments & Components .................. 4,000 236,805
Suedzucker AG
Food & Household Products ................. 244 119,359
Veba AG
Electrical & Gas Utilities ................ 6,342 431,860
----------
3,087,055
----------
Italy-4.4%
Assicurazioni Generali Spa
Insurance ................................. 8,551 210,029
Banca Commerciale Italiana
Banking ................................... 65,276 226,935
Ente Natzionale Idrocarburi
Energy Sources ............................ 38,455 218,035
Fiat Spa
Automobiles ............................... 18,462 53,695
IMI
Banking ................................... 11,676 138,607
Instituto Bancario San Paulo
Banking ................................... 15,463 147,725
Mediaset SPA
Business & Public Services ................ 17,489 85,913
Telecom Italia Mobile Spa
Telephone Utilities ....................... 72,417 334,248
14
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997 continued
- --------------------------------------------------------------------------------
Issuer/Industry Shares Value
- --------------------------------------------------------------------------------
Unicem
Building Materials ........................ 9,000 $ 73,491
----------
1,488,678
----------
Japan-29.8%
Aoyama Trading Co.
Retailing ................................. 6,200 110,638
Bank of Tokyo Mitsubishi
Banking ................................... 23,050 317,762
Canon Inc.
Electrical & Electronics .................. 16,000 372,520
Dai-Ichi Kangyo Bank
Banking ................................... 20,000 117,944
Dai Nippon Printing
Multi-Industry ............................ 10,000 187,639
Fanuc Co.
Machinery & Engineering ................... 12,000 454,009
Fuji Bank
Banking ................................... 20,000 80,876
Fuji Photo Film Co.
Household Appliances ...................... 2,000 76,587
Fujitsu Ltd.
Instruments & Components .................. 33,000 353,833
Honda Motor Co. Ltd.
Automobiles ............................... 14,000 513,594
Industrial Bank of Japan
Banking ................................... 360 2,564
Japan Tobacco
Beverages & Tobacco ....................... 56 397,151
Kawasaki Steel Corp.
Steel ..................................... 110,000 149,958
Marubeni Corp.
International Trade ....................... 73,000 128,031
Mitsubishi Heavy Industries
Machinery & Engineering ................... 70,000 291,644
Mitsubishi Trust & Banking
Financial Services ........................ 21,000 210,692
Mitsui Mining & Smelting Co.
Non-Ferrous Metals ........................ 32,000 128,422
NTT Data Comm Systems Corp.
Telephone Utilities ....................... 7 376,886
Nippon Kokan K.K
Steel ..................................... 100,000 79,651
Nippon Oil Co.
Energy Sources ............................ 45,000 116,145
Nippon Paper Industries
Forest Products & Paper ................... 50,000 196,063
Nippon Telegraph & Telephone Co.
Telephone Utilities ....................... 53 454,622
Nomura Securities Ltd.
Financial Services ........................ 36,000 479,743
Obayashi
Building & Construction ................... 60,000 204,028
Osaka Gas Co. Ltd.
Electrical & Gas Utilities ................ 100,000 228,230
Ryohin Keikaku Co.
Food & Household Products ................. 1,600 105,384
Sankyo Co. Ltd.
Pharmaceuticals & Health .................. 14,000 316,305
Seven-Eleven Japan Ltd.
Retailing ................................. 7,000 495,366
Shin-Etsu Chemical Co.
Chemicals ................................. 16,800 320,380
Sony Corp.
Electrical & Electronics .................. 5,000 444,206
Sumitomo Bank Ltd.
Banking ................................... 20,000 228,230
Sumitomo Electric Industries
Industrial Components ..................... 26,000 354,446
TDK Corp.
Instruments & Components .................. 5,000 376,809
Tokio Marine & Fire Insurance
Insurance ................................. 36,000 408,057
Tokyo Electron Ltd.
Instruments & Components .................. 8,800 281,719
Toray Industries Inc.
Textiles .................................. 22,000 98,568
15
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997 continued
- --------------------------------------------------------------------------------
Issuer/Industry Shares Value
- --------------------------------------------------------------------------------
Toyota Motor Corp.
Automobiles ............................... 16,000 $ 458,298
Yamato Transport Co. Ltd.
Road & Rail Transport ..................... 11,000 147,431
----------
10,064,431
----------
Mexico-1.1%
Alfa SA
Multi-Industry ............................ 7,848 53,192
Apasco SA
Building Materials ........................ 6,000 41,633
Cemex SA
Building Materials ........................ 14,941 67,666
CIFRA-Class C
Retailing ................................. 17,220 38,620
CIFRA SA
Retailing ................................. 1,357 3,346
Desc SA-Class B
Multi-Industry ............................ 4,794 45,799
Desc SA-Class C
Multi-Industry ............................ 84 791
Grupo Carso
Multi-Industry ............................ 7,200 48,175
Hylsamex SA
Steel ..................................... 5,263 30,976
Kimberly Clark
Pharmaceuticals & Health .................. 5,610 27,457
----------
357,655
----------
Netherlands-5.5%
Akzo Nobel
Chemicals ................................. 1,112 191,727
Baan Company NV*
Data Processing &
Reproduction .............................. 5,234 171,399
Benckiser NV
Food & Household Products ................. 2,191 90,659
BeSemiconductor Industries*
Instruments & Components .................. 6,970 68,750
Elsevier NV
Business & Public Services ................ 11,503 186,077
ING Groep NV
Insurance ................................. 6,807 286,695
Philips Electronics NV
Industrial Components ..................... 600 35,983
Royal Dutch Petroleum Co.
Energy Sources ............................ 8,544 468,990
Vendex International NV
Retailing ................................. 3,542 195,472
Ver Ned Uitgevers
Business & Public Services ................ 5,949 167,821
----------
1,863,573
----------
Spain-4.9%
Argentina Corp.
Banking ................................... 5,966 363,012
Banco Bilbao Vizcaya
Banking ................................... 5,882 190,340
Banco Central Hispano
Banking ................................... 8,552 208,257
Corp Financiera Reunida*
Financial Services ........................ 15,722 84,105
Fomento Const Y Contra
Building & Construction ................... 2,419 92,092
Gas Natural SDG SA
Electrical & Gas Utilities ................ 4,663 241,796
Telefonica Nacional Espana
Telephone Utilities ....................... 10,569 301,773
Vallehermoso SA
Real Estate ............................... 2,801 85,859
Viscofan Envoltura
Food & Household Products ................. 3,619 90,861
----------
1,658,095
----------
Switzerland-6.3%
Ciba Specialty Chemicals
Chemicals ................................. 2,097 249,711
Credit Suisse Group
Banking ................................... 2,261 349,703
16
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997 continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------
Nestle SA
Food & Household Products ................. 279 $ 417,965
Novartis AG
Pharmaceuticals & Health .................. 170 275,733
Rieter Holdings Ltd.
Machinery & Engineering ................... 470 200,712
Union Bank of Switzerland
Multi-Industry ............................ 282 407,599
Zurich Versicherungs
Insurance ................................. 467 222,442
----------
2,123,865
----------
United Kingdom-16.7%
Avis Europe
Road & Rail Transport ..................... 30,045 85,867
B.A.T. Industries
Multi-Industry ............................ 13,784 125,698
BTR
Multi-Industry ............................ 59,700 180,425
Barclays Bank
Banking ................................... 7,586 201,951
British Aerospace
Aerospace & Defense ....................... 2,369 67,510
British Petroleum Co.
Energy Sources ............................ 24,275 321,123
British Telecommunications
Telephone Utilities ....................... 28,863 227,428
Cable & Wireless
Telephone Utilities ....................... 15,889 139,623
Caradon
Miscellaneous Materials ................... 20,889 60,729
Centrica
Electrical & Gas Utilities ................ 46,149 67,841
Diageo
Beverages & Tobacco ....................... 22,800 208,591
General Electric
Electrical & Electronics .................. 14,562 94,357
Glaxo Wellcome
Pharmaceuticals & Health .................. 17,931 427,485
Hillsdown Holdings
Food & Household Products ................. 55,483 134,874
HSBC Holdings
Banking ................................... 8,089 209,922
Kingfisher
Retailing ................................. 10,008 139,724
Ladbroke Group
Leisure & Tourism ......................... 43,610 189,102
Lloyds TSB Group
Banking ................................... 27,932 363,384
Logica
Business & Public Services ................ 8,001 152,837
London International Group
Pharmaceuticals & Health .................. 37,838 99,438
Marks & Spencer
Retailing ................................. 12,357 122,202
National Power
Electrical & Gas Utilities ................ 12,839 126,528
Prudential Corp.
Insurance ................................. 20,058 244,253
RMC Group
Building Materials ........................ 8,098 114,654
Reed International
Business & Public Services ................ 11,272 107,383
Royal & Sun Alliance
Insurance ................................. 20,419 205,589
Sainsbury
Retailing ................................. 25,834 217,678
Severn Trent Water
Electrical & Gas Utilities ................ 10,745 172,604
SmithKline Beecham
Real Estate ............................... 29,797 307,108
Tomkins
Multi-Industry ............................ 24,978 118,156
17
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Portfolio Of Investments December 31, 1997 continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------
Unilever
Food & Household Products ................. 13,306 $ 114,455
Vodafone
Telephone Utilities ....................... 23,908 172,782
Zeneca
Pharmaceuticals & Health .................. 4,080 144,519
----------
5,665,820
----------
Issuer Value
- --------------------------------------------------------------------------------
Total Investments
(Identified Cost $31,526,723) ............. 94.7% $31,978,125
Other Assets,
Less Liabilities .......................... 5.3 1,792,195
------- -----------
Net Assets .................................. 100% $33,770,320
======= ===========
*Non income producing.
See notes to financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Statement Of Assets And Liabilities December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value (Note 1A) (Identified Cost, $31,526,723) .... $31,978,125
Foreign currency, at value (Cost, $276,199) ...................... 274,619
Cash ............................................................. 1,343,321
Receivable for investments sold .................................. 175,695
Dividends and interest receivable ................................ 34,419
-----------
Total assets ................................................. 33,806,179
-----------
Liabilities:
Payable for securities purchased ................................. 1,012
Payable to affiliates--Investment advisory fees (Note 2) ......... 29,466
Other liabilities ................................................ 5,381
-----------
Total liabilities ............................................ 35,859
-----------
Net Assets ....................................................... $33,770,320
===========
Represented by:
Paid-in capital for beneficial interests ......................... $33,770,320
===========
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Statement Of Operations For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $158,000) ...... $ 663,153
Interest .................................................... 34,845
----------
Total investment income ................................... $ 697,998
----------
Expenses:
Investment advisory fees (Note 2) ........................... 440,517
Administrative fees (Note 3) ................................ 22,029
Expense fees (Note 6) ....................................... 2,479
----------
Total expenses ............................................ 465,025
Less aggregate amount waived by the Investment Advisor and
the Administrator (Note 2 and Note 3) ................... (24,529) 440,496
---------- ----------
Net investment income ..................................... 257,502
----------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investment transactions ................ 3,048,556
Net realized gain on foreign exchange currencies transactions 94,860
----------
Net realized gain ......................................... 3,143,416
----------
Unrealized appreciation (depreciation) on investments--
Beginning of period ...................................... 1,419,174
End of period ............................................ 454,843 (964,331)
----------
Translation of other assets and liabilities denominated
in foreign currencies--net ............................... (4,253)
----------
Net change in unrealized appreciation (depreciation) ..... (968,584)
----------
Net realized and unrealized gain on investments .......... 2,174,832
----------
Net Increase in Net Assets Resulting from Operations ........ $2,432,334
==========
</TABLE>
See notes to financial statements
19
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Statement Of Changes In Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Net investment income ................................................. $ 257,502 $ 306,984
Net realized gain on investments and foreign exchange transactions .... 3,143,416 3,632,070
Net change in unrealized depreciation of investments and
foreign currency exchange ........................................... (968,584) (2,379,237)
------------ ------------
Net increase in net assets resulting from operations .............. 2,432,334 1,559,817
------------ ------------
Capital Transactions:
Proceeds from contributions ........................................... 7,972,770 28,377,160
Value of withdrawals .................................................. (25,691,025) (20,994,299)
------------ ------------
Net increase (decrease) in net assets from capital transactions ... (17,718,255) 7,382,861
------------ ------------
Net Increase (Decrease) in Net Assets: ................................ (15,285,921) 8,942,678
Net Assets:
Beginning of period ................................................... 49,056,241 40,113,563
------------ ------------
End of period ......................................................... $ 33,770,320 $ 49,056,241
============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1994
Year Ended December 31, (Commencement
----------------------------- of Operations) of
1997 1996 1995 December 31, 1994
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net Assets, end of period (000's omitted) ............. $33,770 $49,056 $40,114 $32,153
Ratio of expenses to average net assets ............... 1.00% 1.11% 1.20% 1.22%*
Ratio of net investment income to average net assets .. 0.58% 0.65% 0.59% 0.60%*
Portfolio turnover .................................... 99% 109% 51% 25%
Average commission rate per share (A) ................. $0.0418 $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......................... 1.06% 1.13% N/A N/A
Net investment income to average net assets............ 0.52% 0.63% N/A N/A
</TABLE>
* 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
20
<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.
21
<PAGE>
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International Equity Portfolio
- --------------------------------------------------------------------------------
Notes To Financial Statements continued
- --------------------------------------------------------------------------------
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 custodian 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 $440,517 of which $2,500 was
voluntarily waived for the year ended December 31, 1997. 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 $22,029, all of which was voluntarily waived for
the year ended December 31, 1997. 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, 1997, purchases and sales of investment
securities, other than short-term investments, aggregated $42,085,219 and
$58,852,525, 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 com puted on a federal income tax
basis, are as follows:
Aggregate cost...................... $31,580,776
===========
Gross unrealized appreciation....... $ 3,966,685
Gross unrealized depreciation....... (3,569,336)
-----------
Net unrealized appreciation......... $ 397,349
===========
(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, 1997.
(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 $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 $189. Since the line of
credit was established, there have been no borrowings.
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International Equity Portfolio
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Independent Auditors' Report
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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, 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
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