<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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PORTFOLIO OF INVESTMENTS October 31, 1997
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ISSUER SHARES VALUE
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COMMON STOCKS--97.6%
COMMERCIAL SERVICES - 22.5%
Abacus Direct Corp.* .......................... 25,400 $ 933,450
AHL Services Inc. ............................. 8,160 145,860
Intelliquest Information Group* ............... 26,800 455,600
ITEQ Inc.* .................................... 39,430 492,875
Lamar Advertising Co.* ........................ 34,980 1,184,947
Metro Networks Inc.* .......................... 17,910 555,210
NFO Research Inc.* ............................ 56,580 1,018,440
Probusiness Services Inc.* .................... 17,800 356,000
Profit Recovery Group
International* ............................... 34,300 535,938
Registry Inc.* ................................ 21,260 882,290
Rental Services Corp.* ........................ 42,730 1,143,028
Snyder Communications Inc.* ................... 48,400 1,427,800
Whittman-Hart Inc.* ........................... 33,980 985,420
Wilmar Industries Inc.* ....................... 39,510 1,037,138
-----------
11,153,996
-----------
COMMODITIES & PROCESSING - 3.7%
Om Group Inc. ................................. 27,120 1,023,780
Synthetic Industries Inc.* .................... 28,290 792,120
-----------
1,815,900
-----------
CONSUMER DURABLES - 1.4%
Tower Automotive* ............................. 16,680 698,475
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CONSUMER NON-DURABLES - 5.0%
General Cigar Holdings Inc.* .................. 16,400 474,575
Performance Food Group Co.* ................... 38,200 706,700
Suiza Foods Corp.* ............................ 25,400 1,279,525
-----------
2,460,800
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CONSUMER SERVICES - 11.0%
Central Parking Corp. ......................... 22,200 1,212,675
Gray Communication Systems Inc. ............... 23,400 583,537
Heftel Broadcasting Corp.* .................... 18,340 1,219,610
Premier Parks Inc.* ........................... 30,330 1,213,200
Suburban Lodges America Inc.* ................. 49,610 1,227,848
-----------
5,456,870
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ELECTRONICS/TECHNOLOGICAL SERVICES - 13.1%
Claremont Technology
Group Inc.* .................................. 25,020 553,568
ETEC Systems Inc.* ............................ 12,800 571,200
E Trade Group Inc.* ........................... 14,690 453,554
Harbinger Corp.* .............................. 17,200 511,700
Imnet Systems Inc.* ........................... 28,300 516,475
Inacom Corp.* ................................. 15,150 466,809
Lernout and Hauspie Speech
Products* .................................... 18,300 887,550
QAD Inc.* ..................................... 46,400 655,400
Sipex Corp.* .................................. 23,660 777,823
Speedfam International Inc. ................... 7,800 289,575
Xionics Document Technologies* ................ 53,450 815,113
-----------
6,498,767
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ENERGY/MINERAL - 7.1%
Dawson Production Services Inc.* .............. 27,600 669,300
Forcenergy Gas Exploration* ................... 31,270 1,020,184
Key Energy Group Inc.* ........................ 24,700 774,962
Lomak Petroleum Inc. .......................... 57,340 1,064,374
-----------
3,528,820
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FINANCE - 10.3%
Allied Group .................................. 22,620 1,068,795
Executive Risk Inc. ........................... 18,030 1,187,726
Metris Companies Inc. ......................... 21,430 905,417
Sirrom Capital Corp. .......................... 23,760 1,196,910
WestAmerica Bancorp ........................... 8,510 748,880
-----------
5,107,728
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HEALTH SERVICES/TECHNOLOGY - 11.5%
Concentrate Managed Care Inc.* ................ 27,760 905,670
Henry Schein Inc.* ............................ 29,080 956,005
Human Genome Sciences Inc.* ................... 23,480 962,680
Parexel International Corp.* .................. 32,900 1,188,512
Renal Treatment Centers* ...................... 30,140 1,000,271
Viropharma Inc.* .............................. 30,600 673,200
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5,686,338
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MISCELLANEOUS - 0.9%
American Disposal Services Inc. ............... 13,300 468,825
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PRODUCER MANUFACTURING - 3.0%
Hardinge Brothers Inc. ........................ 31,100 1,061,287
Miller Industries Inc./Tenn.* ................. 45,230 457,954
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1,519,241
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RETAIL TRADE - 5.3%
CDW Computer Centers Inc.* .................... 15,590 966,580
Men's Wearhouse Inc.* ......................... 24,260 940,075
Wholesale Foods Market Inc.* .................. 18,900 741,825
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2,648,480
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TRANSPORTATION - 2.8%
Eagle USA Airfreight Inc.* .................... 30,790 931,397
Hub Group Inc.* ............................... 14,600 445,300
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1,376,697
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TOTAL COMMON STOCK
(Identified Cost $39,977,533) .................................. 48,420,937
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SHORT-TERM--3.1%
State Street Bank Repurchase Agreement 4.00%
due 11/03/97 proceeds at maturity
$1,544,642 (collateralized by $1,580,000
U.S. Treasury Note 5.25% due 1/31/01) .......................... 1,544,000
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TOTAL INVESTMENTS
(Identified Cost $41,521,533) ................ 100.7% 49,964,937
OTHER ASSETS
LESS LIABILITIES ............................. (0.7) (366,920)
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NET ASSETS .................................... 100.0% $49,598,017
====== ===========
* Non income producing securities.
See notes to financial statements
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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STATEMENT OF ASSETS AND LIABILITIES October 31, 1997
ASSETS:
Investments at value (Note 1A) (Identified Cost, $41,521,533) ... $49,964,937
Cash ............................................................ 624
Receivable for securities sold .................................. 75,335
Dividend and interest receivable ................................ 14,129
-----------
Total assets ................................................... 50,055,025
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LIABILITIES:
Payable for investments purchased ............................... 394,160
Payable to affiliates - Investment advisory fees (Note 2) ....... 33,607
Accrued expenses and other liabilities .......................... 29,241
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Total liabilities .............................................. 457,008
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NET ASSETS ...................................................... $49,598,017
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REPRESENTED BY:
Paid-in capital for beneficial interests ........................ $49,598,017
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Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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STATEMENT OF OPERATIONS
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31,
(NOTE 1F) 1996
-------------- -----------
INVESTMENT INCOME:
Dividend income .............................. $ 118,059 $ 75,339
Interest income .............................. 64,937 73,749
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182,996 149,088
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EXPENSES:
Investment advisory fees (Note 2) .............. 284,285 147,259
Custodian fees ................................. 58,867 31,705
Auditing fees .................................. 22,700 28,800
Administrative fees (Note 3) ................... 18,952 9,817
Legal fees ..................................... 4,199 5,853
Trustee fees ................................... 1,847 5,001
Miscellaneous .................................. 1,538 2,022
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Total expenses ............................... 392,388 230,457
Less aggregate amount waived by Investment
Adviser and Administrator (Notes 2 and 3) ... (70,133) (109,905)
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Net expenses ................................. 322,255 120,552
---------- ----------
Net investment income/loss ................... (139,259) 28,536
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions . 785,204 1,063,995
Net change in unrealized appreciation of
investments ................................. 6,200,702 1,516,882
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Net realized and unrealized gain on
investments ................................. 6,985,906 2,580,877
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NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................... $6,846,647 $2,609,413
========== ==========
See notes to financial statements
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT
OCTOBER 31, 1997 YEAR ENDED OF OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
----------- ----------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) ........................ $ (139,259) $ 28,536 $ 16,583
Net realized gain on investment transactions ........ 785,204 1,063,995 288,385
Net change in unrealized appreciation of investments 6,200,702 1,516,882 725,820
----------- ----------- ----------
Net increase in net assets resulting from operations 6,846,647 2,609,413 1,030,788
----------- ----------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions ......................... 18,404,723 45,631,942 4,044,649
Value of withdrawals ................................ (22,795,675) (6,088,455) (86,015)
----------- ----------- ----------
Net increase (decrease) in net assets from
capital transactions ............................. (4,390,952) 39,543,487 3,958,634
----------- ----------- ----------
NET INCREASE IN NET ASSETS: ......................... 2,455,695 42,152,900 4,989,422
NET ASSETS:
Beginning of period ................................. 47,142,322 4,989,422 --
----------- ----------- ----------
End of period ....................................... $49,598,017 $47,142,322 $4,989,422
=========== =========== ==========
</TABLE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 21, 1995
TEN MONTHS ENDED (COMMENCEMENT
OCTOBER 31, 1997 YEAR ENDED OF OPERATIONS) TO
(NOTE 1F) DECEMBER 31, 1996 DECEMBER 31, 1995
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<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) ................. $49,598 $47,142 $4,989
Ratio of expenses to average net assets ................... 0.85%* 0.61% 0%
Ratio of net investment income (loss) to average net assets (0.37)%* 0.15% 1.22%*
Portfolio turnover ........................................ 108% 89% 41%
Average commission rate per share (A) ..................... $0.0460 $0.0467 N/A
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed Portfolio expenses
for the periods indicated and had expenses been limited to that required by certain state securities law for
the period ended December 31, 1995, the ratios would have been as follows:
RATIOS:
Expenses to average net assets ............................ 1.04%* 1.17% 2.50%*
Net investment loss to average net assets ................. (0.56)%* (0.41)% (1.28)%*
(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. * Annualized
See notes to financial statements
</TABLE>
<PAGE>
Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio) (See Note 7)
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NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Small Cap Growth Portfolio (the "Portfolio"), (formerly Small Cap Equity
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 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
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. CHANGE IN FISCAL YEAR END -- During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. 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 (SEE NOTE 7)
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $284,285 of which $57,125 was
voluntarily waived for the ten months ended October 31, 1997. 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
$18,952 of which $13,008, was voluntarily waived for the ten months ended
October 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 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 $48,193,730 and $53,039,703, respectively, for the ten months ended
October 31, 1997.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 1997, as computed on a federal income tax basis,
are as follows:
Aggregate cost ........................... $41,521,533
===========
Gross unrealized appreciation ............ $ 9,809,981
Gross unrealized depreciation ............ (1,366,577)
-----------
Net unrealized appreciation .............. $ 8,443,404
===========
(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 $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. 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 ten months
ended October 31, 1997, the commitment fee allocated to the Portfolio was $187.
Since the line of credit was established, there have been no borrowings.
(7) SUBSEQUENT EVENT
Effective November 1, 1997, the Portfolio changed its name from Small Cap Equity
Portfolio to Small Cap Growth Portfolio. In addition, at a Special Meeting on
October 24, 1997, the investors in the Portfolio approved a new Management
Agreement, which became effective November 1, 1997. Under the new Management
Agreement, Citibank will be responsible for the overall management of the
Portfolio's business affairs, and will provide investment advisory as well as
administrative services, including the provision of general office facilities
and supervision of the overall administration of the Portfolio. The existing
Investment Advisory and Administration Agreements have been terminated. For
these services, the Portfolio will pay Citibank management fees equal to an
annual rate of 0.75% of the Portfolio's average daily net assets.
<PAGE>
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Small Cap Growth Portfolio (formerly Small Cap 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, SMALL CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Growth Portfolio (the
"Portfolio", formerly Small Cap Equity Portfolio), a series of The Premium
Portfolios, as at October 31, 1997, 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 October 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 October 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
December 10, 1997
