<PAGE>
Small Cap Equity Portfolio
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PORTFOLIO OF INVESTMENTS December 31, 1995
Issuer Shares Value
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AUTOS AND TRANSPORT - 4.4%
COMMON STOCKS - 92.9%
Airborne Freight Corp. ...... 3,500 $ 93,188
Eagle USA AirFreight Inc.* .. 4,900 128,624
--------
221,812
--------
CONSUMER SERVICES - 16.5%
Bally Entertainment Corp.*... 6,000 84,000
Central Parking Corp. ....... 3,100 89,125
Davidson & Associates* ...... 4,400 96,800
Gadzooks Inc.* .............. 3,600 90,900
JPFoodservice Inc.* ......... 4,600 89,700
Logan's Roadhouse Inc.* ..... 4,800 82,800
Neostar Retail Group Inc.* .. 1,800 13,275
Red Lion Hotels Inc.* ....... 5,300 92,750
Regal Cinemas* .............. 3,350 99,662
Sports &Recreation Inc.* .... 12,100 86,213
--------
825,225
--------
CONSUMER STAPLES - 1.7%
Pete's Brewing Company* ..... 6,000 84,000
--------
FINANCIAL SERVICES - 15.3%
Affiliated Computer Services
Class A* ................. 2,300 86,250
CCB Financial Corp. ......... 1,450 80,475
Charter One Financial Inc. .. 2,300 70,438
First Empire State Corp. .... 350 76,300
Investors Financial
Services Corp.* ........... 3,900 80,925
Meadowbrook Insurance Group* 3,300 110,550
Roosevelt Financial Group ... 5,000 96,875
Susquehanna Bancshares Inc. . 3,300 87,450
Texas Regional Banc Shares "A" 4,300 72,025
--------
761,288
--------
HEALTH CARE - 15.8%
Community Health Systems* ... 2,600 92,625
Enterprise Systems Inc.* .... 3,100 94,550
Interneuron Pharmaceuticals* 4,600 117,300
Lunar Corp.* ................ 2,775 76,313
Mariner Health Group Inc.* .. 5,200 87,100
Mecon Inc.* ................. 6,500 103,188
Neuromedical Systems Inc.* .. 1,450 29,180
Sierra Health Services Inc.* 2,800 88,900
Vivus Inc.* ................. 3,100 96,875
---------
786,031
---------
INTEGRATED OILS - 3.7%
Giant Industries Inc. ....... 8,100 99,225
KCS Energy Inc............... 5,800 87,000
---------
186,225
---------
MATERIALS & PROCESSING - 3.7%
Carbide/Graphite Group* ..... 6,500 93,437
Intertape Polymer Group ..... 2,900 90,988
---------
184,425
---------
OTHER ENERGY - 3.4%
Input/Output Inc.* .......... 1,600 92,400
Lomak Petroleum Inc.* ....... 7,700 75,075
---------
167,475
---------
PRODUCER DURABLES - 5.7%
Applied Power Inc. Class "A" 3,300 99,000
Blount International Inc.
Class "A" ................. 3,500 91,875
Hardinge Inc.* .............. 3,600 93,600
---------
284,475
---------
TECHNOLOGY - 19.1%
C.I.S. Technologies Inc.* ... 21,500 69,875
Citrix Systems Inc.* ........ 4,500 146,250
Exar Corp.* ................. 5,700 84,075
McAfee Associates Inc.* ..... 1,700 74,588
Meta-Software Inc.* ......... 3,200 53,600
Network Appliance Inc.* ..... 5,200 208,650
Network General Corporation* 2,600 86,775
Remedy Corp.* ............... 1,400 82,950
Silicon Valley Research Inc.* 19,300 72,375
State of the Art Inc.* ...... 7,700 76,037
---------
955,175
---------
UTILITIES - 3.6%
Atlantic Tele-Network ....... 8,500 $ 91,906
Petersburg Long Distance
Inc. ADRs* ................ 18,600 88,350
---------
180,256
---------
TOTAL COMMON STOCK
(Identified Cost $3,910,567) 4,636,387
---------
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SHORT-TERM OBLIGATIONS - 15.8%
PRINCIPAL
AMOUNT
-------
Salomon Repurchase Agreement,
5.375% due 1/2/96 proceeds
at maturity $195,816
(secured by $182,343
US Teasury Bill 5.15%
due 6/13/96 and $17,788
US Treasury Bills
5.15% due 6/6/96) ........ $195,700 195,700
United States Treasury Bill
4.850% due 3/28/96 300,000 296,363
United States Treasury Bill
4.950% due 3/28/96 300,000 296,287
----------
TOTAL SHORT-TERM OBLIGATIONS,
AT AMORTIZED COST .......... 788,350
----------
TOTAL INVESTMENTS ........... 108.7% 5,424,737
(Identified Cost $4,698,917)
OTHER ASSETS,
LESS LIABILITIES ........... (8.7) (435,315)
----- ----------
NET ASSETS 100.0% $4,989,422
===== ==========
ADRs American Depositary Receipts
* Non income producing
See notes to financial statements
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Small Cap Equity Portfolio
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STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
ASSETS:
Investments at value (Note 1A) (Identified Cost, $4,698,917) $5,424,737
Cash ...................................................... 385
Interest receivable and other assets ...................... 1,528
----------
Total assets .......................................... 5,426,650
----------
LIABILITIES:
Payable for investments purchased ......................... 437,228
----------
NET ASSETS ................................................ $4,989,422
==========
REPRESENTED BY:
Paid-in capital for beneficial interests .................. $4,989,422
==========
See notes to financial statements
Small Cap Equity Portfolio
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STATEMENT OF OPERATIONS
From June 21, 1995 (Commencement of Operations) to December 31, 1995
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<S> <C> <C>
INVESTMENT INCOME:
Dividend Income ............................................... $ 5,205
Interest Income ............................................... 11,378 $ 16,583
--------
EXPENSES:
Auditing fees ................................................... 25,000
Investment advisory fees (Note 2) ............................... 10,222
Custodian fees .................................................. 7,363
Legal fees ...................................................... 3,368
Administrative fees (Note 3) .................................... 682
Trustee fees .................................................... 400
Miscellaneous ................................................... 1,300
--------
Total expenses ................................................ 48,335
Less expense assumed by the Administrator: ...................... (37,431)
Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2 and 3) ...................... (10,904)
--------
Net Expenses .................................................. -0-
----------
Net investment income ......................................... 16,583
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions ........... 288,385
Unrealized appreciation (depreciation) of investments--
Beginning of period .......................................... --
End of period ................................................ 725,820
--------
Net change in unrealized appreciation (depreciation)............ 725,820
----------
Net realized and unrealized gain (loss) on investments ....... 1,014,205
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $1,030,788
==========
</TABLE>
See notes to financial statements
<PAGE>
Small Cap Equity Portfolio
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STATEMENT OF CHANGES IN NET ASSETS
JUNE 21, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 16,583
Net realized gain on investment transactions .......... 288,385
Net change in unrealized appreciation of investments .. 725,820
----------
Net increase in net assets resulting from operations 1,030,788
----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ........................... 4,044,649
Value of withdrawals .................................. (86,015)
----------
Net increase in net assets from capital transactions 3,958,634
----------
NET INCREASE IN NET ASSETS: ........................... 4,989,422
NET ASSETS:
Beginning of period ................................... --
----------
End of period ......................................... $4,989,422
==========
See notes to financial statements
Small Cap Equity Portfolio
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FINANCIAL HIGHLIGHTS
JUNE 21, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
-----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted)................ $4,989
Ratio of expenses to average net assets ................ -0-
Ratio of net investment income to average net assets .... 1.22%*
Portfolio turnover ...................................... 41%
Note: If Agents of the Portfolio had not voluntarily waived all of their fees
and assumed Fund expenses for the period indicated and had expenses been
limited to that required by certain state securities law, the ratios would
have been as follows:
RATIOS:
Expenses to average net assets .......................... 2.50%*
Net investment income to average net assets ............. (1.28%)*
* Annualized
See notes to financial statements
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Small Cap Equity Portfolio
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NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Small Cap 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 generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
in conformity with generally accepted accounting principles and are as follows:
A. INVESTMENT SECURITY VALUATIONS -- Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services 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, since such valuations are believed to reflect more accurately the fair
value of the securities. 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 U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes 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 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.
F. 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 $10,222 all of which was voluntarily
waived for the period June 21, 1995 (Commencement of Operations) to December 31,
1995. The investment advisory fees are computed at the annual rate of 0.75% 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 $682
all of which was voluntarily waived for the period June 21, 1995 (Commencement
of Operations) to December 31, 1995. 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 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 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 $4,746,834 and $1,124,652, respectively, for the period June 21, 1995
(Commencement of Operations) to December 31, 1995.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at December 31, 1995, as computed on a federal income tax
basis, are as follows:
Aggregate cost .......................... $4,698,917
==========
Gross unrealized appreciation ........... $ 886,867
Gross unrealized depreciation ........... (161,047)
----------
Net unrealized appreciation $ 725,820
==========
(6) LINE OF CREDIT
The Portfolio, along with the other Landmark Funds, entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $40
million for temporary or emergency purposes. Interest on the borrowings, if any,
is charged to the specific fund executing the borrowing at the base rate of the
bank. In addition, the $15 million committed portion of the line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the period June 21, 1995 (commencement
of operations) to December 31, 1995, no commitment fee was allocated to the
Portfolio. Since the line of credit was established, there have been no
borrowings.
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Small Cap Equity Portfolio
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INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, SMALL CAP EQUITY PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Equity Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at December 31, 1995 and
the related statements of operations and of changes in net assets and the
financial highlights for the period June 21, 1995 (commencement of operations)
to December 31, 1995. 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 audit.
We conducted our audit 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 audit, which included confirmation of investments owned as
at December 31, 1995 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provides 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, 1995, the
results of its operations and the changes in its net assets and the financial
highlights for the period June 21, 1995 (commencement of operations) to December
31, 1995 in accordance with U.S. generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 7, 1996
