LARGE CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.6%
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 9.0%
- --------------------------------------------------------------------------------
Allied Signal, Inc. 35,000 $ 1,992,813
Emerson Electronics Co. 137,000 8,228,563
General Electric Co. 70,200 9,516,488
Honeywell, Inc. 30,000 3,163,125
Raytheon Co. 66,270 1,930,114
------------
24,831,103
------------
COMMUNICATION EQUIPMENT & SERVICES -- 11.1%
- --------------------------------------------------------------------------------
AT&T Corp. 178,000 8,321,500
Bell Atlantic Corp. 73,200 4,753,425
GTE Corp. 30,800 2,310,000
SBC Communications, Inc. 147,060 7,490,869
Sprint Corp. 105,000 7,802,812
------------
30,678,606
------------
CONSUMER CYCLICALS -- 5.9%
- --------------------------------------------------------------------------------
General Motors Corp. 51,000 3,582,750
Masco Corp. 220,000 6,710,000
McGraw Hill Companies, Inc. 100,000 5,962,500
------------
16,255,250
------------
CONSUMER STAPLES -- 7.4%
- --------------------------------------------------------------------------------
Avon Products, Inc. 128,000 4,128,000
Heinz Co. 70,000 3,342,500
Kimberly-Clark Corp. 100,000 6,312,500
PepsiCo, Inc. 191,500 6,642,656
------------
20,425,656
------------
ENERGY -- 12.9%
- --------------------------------------------------------------------------------
BP Amoco Plc, Adr's 124,000 7,161,000
Chevron Corp. 72,000 6,574,500
Conoco Inc. Class a 156,000 4,280,250
Conoco Inc. Class B 129,599 3,515,373
Exxon Corp. 22,800 1,688,625
Halliburton Co. 75,000 2,826,563
Mobil Corp. 100,100 9,659,650
------------
35,705,961
------------
FINANCE -- 18.2%
- --------------------------------------------------------------------------------
Bank of America Corp. 96,600 6,218,625
Chase Manhattan Corp. 116,500 10,179,187
Chubb Corp. 90,000 4,938,750
Cigna Corp. 56,500 4,223,375
Hartford Financial Services Group 113,000 5,854,812
Marsh & McLennan Companies, Inc. 97,500 7,708,594
Mellon Bank Corp. 202,000 7,461,375
UnumProvident Corp. 114,000 3,754,875
------------
50,339,593
------------
HEALTHCARE -- 8.7%
- --------------------------------------------------------------------------------
American Home~Products Corp. 159,000 8,307,750
Bristol-Myers Squibb Co. 110,000 8,449,375
Pharmacia & Upjohn, Inc. 133,500 7,200,656
------------
23,957,781
------------
RAW & INTERMEDIATE MATERIALS -- 7.8%
- --------------------------------------------------------------------------------
Alcoa Inc. 110,500 6,712,875
Dow Chemical Co. 35,200 4,162,400
E. I. du Pont de ~Nemours & Co. 61,568 3,967,288
International Paper Co. 125,000 6,578,125
------------
21,420,688
------------
TECHNOLOGY -- 4.1%
- --------------------------------------------------------------------------------
Pitney Bowes, Inc. 153,000 6,971,062
Xerox Corp. 150,000 4,200,000
------------
11,171,062
------------
TRANSPORTATION -- 1.6%
- --------------------------------------------------------------------------------
Union Pacific Corp. 80,000 4,460,000
------------
UTILITIES -- 11.9%
- --------------------------------------------------------------------------------
Duke Power Co. 136,505 7,712,532
Enron Corp. 244,000 9,744,750
Unicom Corp. 178,000 6,819,625
Williams Companies Inc. 227,000 8,512,500
------------
32,789,407
------------
TOTAL COMMON STOCKS
(Identified Cost
$271,293,544) 272,035,107
------------
SHORT-TERM OBLIGATIONS--1.3%
- --------------------------------------------------------------------------------
State Street Bank & Trust
Repurchase Agreement
4.25% due 11/01/99 proceeds
at maturity $3,509,000
(collateralized by $3,545,000
Federal Home Loan Bank,
5.875% due 8/15/01, valued
at $3,583,995) 3,509,000
------------
TOTAL INVESTMENTS
(Identified Cost
$274,802,544) 99.9% 275,544,107
OTHER ASSETS,
LESS LIABILITIES 0.1 274,981
----- ------------
NET ASSETS 100.0% $275,819,088
===== ============
ADR's - American Depositary Receipts
See notes to financial statements
16
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $274,802,544) $275,544,107
Cash 419
Receivable for investments sold 880,771
Dividends and interest receivable 414,105
- --------------------------------------------------------------------------------
Total assets 276,839,402
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 703,609
Payable to affiliates--Management fees (Note 2) 138,517
Accrued expenses and other liabilities 178,188
- --------------------------------------------------------------------------------
Total liabilities 1,020,314
- --------------------------------------------------------------------------------
Net Assets $275,819,088
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $275,819,088
================================================================================
LARGE CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME: (Note 1B)
Dividend income (net of foreign withholding
tax of ($12,430)) $3,080,160
Interest income 115,972
- --------------------------------------------------------------------------------
$ 3,196,132
EXPENSES:
Management fees (Note 2) 917,653
Custody and fund accounting fees 128,827
Audit fees 44,272
Legal fees 42,905
Trustees fees 4,738
Other 12,034
- --------------------------------------------------------------------------------
Total expenses 1,150,429
- --------------------------------------------------------------------------------
Net investment income 2,045,703
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
on Investments:
Net unrealized appreciation of investments 7,922,939
Less unrealized depreciation from
contributed assets (Note 1) (5,321,898)
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 2,601,041
Net realized loss from investment transactions (9,875,483)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (7,274,442)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,228,739)
================================================================================
See notes to financial statements
17
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 2,045,703 $1,551,855
Net realized gain (loss) on
investment transactions (9,875,483) 8,655,223
Unrealized appreciation
(depreciation) of investments 2,601,041 (18,203,522)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (5,228,739) (7,996,444)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 249,127,874 279,612,949
Value of withdrawals (97,340,274) (142,356,278)
- --------------------------------------------------------------------------------
Net increase in net assets
from capital transactions 151,787,600 137,256,671
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 146,558,861 129,260,227
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 129,260,227 --
- --------------------------------------------------------------------------------
End of period $275,819,088 $129,260,227
================================================================================
LARGE CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $275,819 $129,260
Ratio of expenses to average net assets 0.75% 0.78%
Ratio of net investment income to
average net assets 1.34% 1.20%
Portfolio turnover 74% 61%
================================================================================
See notes to financial statements
18
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Large Cap Value Portfolio (the "Portfolio"),
a separate series of Asset Allocation Portfolios (the "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 Manager of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 (Commencement of Operations) CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 transferred
a portion of their investable assets in the amounts of $12,341,545, $34,373,886,
$39,082,974 and $16,297,323 including $1,229,530, $3,795,385, $4,553,306 and
$1,443,925, respectively, of unrealized appreciation to the Portfolio in
exchange for an interest in the Portfolio. The total investable assets and
contributions are included in the November 1, 1997 (Commencement of Operations)
to October 31, 1998 "Proceeds from contributions" on the Statement of Changes in
Net Assets.
On August 1, 1999, Growth & Income Portfolio and Balanced Portfolio
transferred all or a portion of their investable assets in the amounts of
$83,477,271 and $142,169,402 including $783,244 and $4,538,654, respectively, of
unrealized appreciation to the Portfolio in exchange for an interest in the
Portfolio. The total investable assets and contributions are included in the
Year Ended October 31, 1999 "Proceeds from contributions" in the Statement of
Changes in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale price are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. 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.
19
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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. 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.
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
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.
F. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses on investment
transactions are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank had
delegated the daily management of the Portfolio to Miller Anderson & Sherrerd
LLP, but effective January 22, 1999 Citibank delegated the daily management of
the Portfolio to SSB~Citi Fund Management LLC (formerly SSBC Fund Management,
Inc.), (the "Subadviser"), an affiliate of Citibank. Citibank is a wholly-owned
subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
The management fees paid to Citibank amounted to $380,698 for the year ended
October 31, 1999. Citibank management fees are computed at the annual rate of
0.60% of the Portfolio's average daily net assets less the aggregate amount
payable by the Portfolio's Trust pursuant to the Sub-Management Agreement with
20
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
the Subadviser. The Portfolio pays the Subadviser the following fee, which is
accrued daily and payable monthly and is at the annual rates equal to the
percentages of the aggregate assets of the Portfolio allocated to the
Subadvisers. Miller Anderson & Sherrerd LLP fee structure was: 0.625% on the
first $25 million; 0.375% on the next $75 million; 0.250% on the next $400
million; and 0.20% on assets in excess of $500 million, and for SSB Citi Fund
Management LLC, the fee structure is: 0.65% on the first $10 million; 0.50% on
the next $10 million; 0.40% on the next $10 million; and 0.30% on assets in
excess of $30 million. The fees paid to the Subadvisers amounted to $536,955 of
which $116,277 was paid to Miller Anderson & Sherrerd LLP and $420,678 to SSB
Citi Fund Management LLC for the year ended October 31, 1999.
The Trust pays no compensation directly to any Trusteee or any other
officer who is affiliated with the Sub-Administrator, all of whom receive
remuneration for their services to the Trust from the Sub-Administrator or its
affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $105,045,056 and $173,633,335,
respectively, for the year ended October 31, 1999.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $274,962,340
================================================================================
Gross unrealized appreciation $ 21,635,516
Gross unrealized depreciation (21,053,749)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 581,767
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio 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 year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $391. Since the line of credit
was established, there have been no borrowings.
21
<PAGE>
LARGE CAP VALUE PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF ASSET ALLOCATION PORTFOLIOS (THE "TRUST"), WITH
RESPECT TO ITS SERIES, LARGE CAP VALUE PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Large Cap Value Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
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
mis-statement. 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, 1999 by correspondence with the custodian and brokers, 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, 1999, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
22
<PAGE>
SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.6%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.4%
- --------------------------------------------------------------------------------
Reynolds & Reynolds Co. 62,300 $ 1,133,081
CONSUMER DURABLE GOODS -- 2.1%
- --------------------------------------------------------------------------------
D.R. Horton Inc. 60,300 712,294
Engle Homes Inc. 38,100 385,763
Flexsteel Industries Inc. 53,000 702,250
------------
1,800,307
------------
CONSUMER NON-DURABLES -- 10.9%
- --------------------------------------------------------------------------------
Dimon Inc. 135,000 472,500
Scweitzer-Mauduit
International Inc. 13,600 162,350
Sola International Inc.* 60,600 848,400
Standard Commercial Corp. 439,400 1,318,200
Timberland Co.* 61,300 3,026,687
Tropical Sportswear International Corp.* 60,000 1,192,500
Wolverine World Wide Inc. 212,200 2,175,050
------------
9,195,687
------------
CONSUMER SERVICES -- 1.5%
- --------------------------------------------------------------------------------
Aztar Corp.* 129,000 1,249,687
ELECTRONIC TECHNOLOGY -- 2.9%
- --------------------------------------------------------------------------------
Aehr Test Systems* 88,900 405,606
ESCO Electronics Corp.* 76,600 895,263
Spacehab Inc.* 217,400 1,114,175
------------
2,415,044
------------
ENERGY MINERALS -- 1.8%
- --------------------------------------------------------------------------------
Nuevo Energy Co.* 106,800 1,515,225
------------
FINANCE -- 17.6%
- --------------------------------------------------------------------------------
Acceptance Insurance Co.* 67,600 975,975
American National Insurance Co. 27,800 1,904,300
Harleysville Group, Inc. 58,500 998,156
MMI Companies Inc. 99,400 813,837
Matrix Bancorp* 77,800 943,325
PBOC Holdings Inc. *85,000 754,375
PMI Group Inc. 26,250 1,361,719
Penn-America Group Inc. 102,100 740,225
Presidential Life Corp. 163,500 3,004,313
Professionals Group Inc.* 89,200 2,146,375
Seibels Bruce Group Inc.* 44,500 97,344
Stancorp FinancialGroup Inc. 45,000 1,141,875
------------
14,881,819
------------
HEALTH TECHNOLOGY -- 2.1%
- --------------------------------------------------------------------------------
West Pharmaceutical
Services Inc. 52,300 1,807,619
INDUSTRIAL SERVICES-- 8.8%
- --------------------------------------------------------------------------------
Atwood Oceanics Inc.* 66,300 1,926,844
ENSCO International Inc. 72,700 1,408,563
Perini Corp.* 56,400 225,600
R&B Falcon Corp.* 114,640 1,425,835
Rowan Companies Inc.* 107,400 1,671,413
Santa Fe International Corp. 37,000 779,313
------------
7,437,568
------------
NON-ENERGY MINERALS -- 4.0%
- --------------------------------------------------------------------------------
LTV Corp. 399,700 1,448,913
Lone Star Technologies Inc.* 66,300 1,388,156
Southdown Inc. 11,500 555,594
------------
3,392,663
------------
PROCESS INDUSTRIES -- 4.8%
- --------------------------------------------------------------------------------
Lancaster Colony Corp. 37,400 1,306,663
RPM Inc. 186,300 2,223,956
Tuscarora Inc. 41,600 514,800
------------
4,045,419
------------
PRODUCER MANUFACTURING -- 23.5%
- --------------------------------------------------------------------------------
Baldor Electric Co. 86,500 1,681,344
Circor International Inc. 34,650 329,175
Commercial Intertech Corp. 50,800 644,525
Commonwealth Industries Inc. 102,600 1,026,000
Global Industrial Technologies Inc.* 175,500 2,149,875
JLG Industries Inc. 286,000 3,664,375
Kaydon Corp. 28,000 694,750
Keystone Consolidated Industries Inc.* 32,500 162,500
Myers Industries Inc. 102,330 1,439,015
Patrick Industries Inc. 58,700 623,687
Superior Industries International Inc. 69,300 1,849,443
Teleflex Inc. 23,000 783,437
16
<PAGE>
SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
Timken Co. 148,800 $ 2,669,100
Tower Automotive Inc. 79,000 1,288,687
Watts Industries Inc. 62,400 854,100
------------
19,860,013
------------
RETAIL TRADE -- 3.0%
- --------------------------------------------------------------------------------
Schultz Sav-O Stores Inc. 108,850 1,605,537
Syms Corp.* 163,400 898,700
------------
2,504,237
------------
TECHNOLOGY SERVICES -- 1.5%
- --------------------------------------------------------------------------------
Ultrak Inc.* 232,700 1,294,394
TRANSPORTATION -- 11.7%
- --------------------------------------------------------------------------------
Air Express International Corp. 48,600 1,293,975
Atlantic Coast AirlinesHoldings* 39,200 911,400
Fritz Companies Inc.* 183,400 2,051,788
Kenan Transport Co. 57,100 1,827,200
Midwest Express Holdings Inc.* 56,000 1,641,500
Motor Cargo Industries Inc.* 136,000 824,500
Tidewater Inc. 44,400 1,332,000
------------
9,882,363
------------
TOTAL COMMON STOCKS
(Identified Cost $96,863,565) 82,415,126
------------
Issuer Value
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 0.7%
- --------------------------------------------------------------------------------
State Street Bank & Trust
Repurchase Agreement
4.25% due 11/01/99
proceeds at maturity
$594,000 (collateralized by
$600,000 Federal National
Mortgage Association
6.00% due 7/16/01;
valued at $609,120) $ 594,000
------------
TOTAL INVESTMENTS
(Identified Cost
$97,457,565) 98.3% 83,009,126
OTHER ASSETS,
LESS LIABILITIES 1.7 1,418,289
------- ------------
NET ASSETS 100.0% $ 84,427,415
======= ============
* Non-income producing
See notes to financial statements
17
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $97,457,565) $83,009,126
Cash 405
Receivable for investments sold 1,721,713
Dividend and interest receivable 20,597
- --------------------------------------------------------------------------------
Total assets 84,751,841
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 145,298
Payable to affiliates-- Management fees (Note 2) 14,810
Accrued expenses and other liabilities 164,318
- --------------------------------------------------------------------------------
Total liabilities 324,426
- --------------------------------------------------------------------------------
NET ASSETS $84,427,415
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $84,427,415
================================================================================
SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
Dividend income $1,428,171
Interest income 120,964
- --------------------------------------------------------------------------------
$1,549,135
EXPENSES:
Management fees (Note 2) 991,045
Custody and fund accounting fees 79,436
Legal fees 29,678
Audit fees 27,890
Trustee fees 6,234
Other 6,505
- --------------------------------------------------------------------------------
Total expenses 1,140,788
- --------------------------------------------------------------------------------
Net investment income 408,347
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized appreciation of investments 30,267,299
Net realized loss from investment transactions (32,586,180)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (2,318,881)
- --------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $(1,910,534)
================================================================================
See notes to financial statements
18
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
Net investment income $ 408,347 $ 433,451
Net realized gain (loss) on investment
transactions (32,586,180) 12,366,831
Unrealized appreciation (depreciation)
of investments 30,267,299 (75,028,999)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (1,910,534) (62,228,717)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 11,738,321 434,934,898
Value of withdrawals (96,265,899) (201,840,654)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (84,527,578) 233,094,244
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (86,438,112) 170,865,527
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 170,865,527 --
- --------------------------------------------------------------------------------
End of period $ 84,427,415 $170,865,527
================================================================================
SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $ 84,427 $ 170,866
Ratio of expenses to average net assets 0.86% 0.89%
Ratio of net investment income
to average net assets 0.31% 0.22%
Portfolio turnover 37% 47%
================================================================================
See notes to financial statements
19
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Value Portfolio (the "Portfolio"),
a separate series of Asset Allocation 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
Manager of the Portfolio is Citibank N.A., ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amounts of $16,913,632, $42,092,855, $81,236,129 and
$40,503,947 including $2,712,350, $7,246,592, $14,228,135 and $6,126,184,
respectively, of unrealized appreciation, to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets are included in the
period November 1, 1997 (Commencement of Operations) to October 31, 1998
"Proceeds from contributions" in the Statement of Changes in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. 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.
20
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
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 on investment
transactions are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank has
delegated the daily management of the Portfolio to Franklin Advisory Services,
LLC ("the Subadviser"). Citibank is a wholly owned subsidiary of Citicorp, which
in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank, amounted to $264,279 for the year
ended October 31, 1999. Management fees are computed at the annual rate of 0.75%
of the Portfolio's average daily net assets less the aggregate amount, if any,
payable by the Portfolio pursuant to the Sub-Management Agreement with the
Subadviser. The Portfolio pays the Subadviser the following fees, which are
accrued daily and payable monthly and are at the annual rates equal to the
percentages of the aggregate assets of the Portfolio allocated to the
Subadviser: 0.55% on first $250 million and 0.50% on remaining assets.
The management fees paid to the Subadviser amounted to $726,766 for the
year ended October 31, 1999.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $47,478,723 and $129,005,004,
respectively, for the year ended October 31, 1999.
21
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate Cost $ 97,504,346
================================================================================
Gross unrealized appreciation $ 8,659,076
Gross unrealized depreciation (23,154,296)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(14,495,220)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio 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 year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $324. Since the line of credit
was established, there have been no borrowings.
22
<PAGE>
SMALL CAP VALUE PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF ASSET ALLOCATION PORTFOLIOS (THE "TRUST"),
WITH RESPECT TO ITS SERIES, SMALL CAP VALUE PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Value Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
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 October 31, 1999 by correspondence with the custodian and brokers, 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, 1999, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
23
<PAGE>
FOREIGN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
ISSUER CURRENCY AMOUNT VALUE
- -------------------------------------------------------------------------------
FIXED INCOME -- 102.9%
- -------------------------------------------------------------------------------
CANADA -- 7.0%
- --------------------------------------------------------------------------------
Canadian Government
Bonds
1.90% due 3/23/09 JPY 398,000,000 $ 3,857,092
--------------
DENMARK -- 2.2%
- -------------------------------------------------------------------------------
Nykredit
5.00% due 10/01/29 DKK 4,044,000 489,029
Oest Kontrollbank
6.125% due 11/30/99 $ 195,000 194,998
Unikredit Realkred
5.00% due 10/01/29 DKK 4,508,000 545,968
--------------
1,229,995
--------------
FRANCE -- 4.7%
- -------------------------------------------------------------------------------
Government of France
5.50% due 4/25/29 EURO 1,630,000 1,621,074
Republic of France
3.00% due 7/25/09 EURO 950,221 958,511
--------------
2,579,585
--------------
GERMANY -- 11.3%
- -------------------------------------------------------------------------------
Bundesrepublik
Deutschland
5.375% due 1/04/10 EURO 1,400,000 1,497,550
Republic of Germany
5.625% due 1/04/28 EURO 1,184,842 1,205,149
4.125% due 7/04/08 EURO 2,650,000 2,581,134
3.75% due 1/04/09 EURO 1,020,000 962,809
--------------
6,246,642
--------------
GREAT BRITAIN -- 9.0%
- -------------------------------------------------------------------------------
Euro Investment Bank
7.00% due 12/08/03 GBP 3,000,000 4,942,661
--------------
GREECE -- 14.3%
- -------------------------------------------------------------------------------
Republic of Greece
7.60% due 1/22/02 GRD 847,000,000 2,677,237
8.90% due 4/01/03 GRD 580,000,000 1,917,378
10.18% due 6/17/03 GRD 64,800,000 210,976
13.10% due 10/23/03 GRD 294,000,000 958,798
6.60% due 1/15/04 GRD 681,000,000 2,110,223
--------------
7,874,612
--------------
ITALY -- 4.7%
- -------------------------------------------------------------------------------
Republic of Italy
6.50% due 11/01/27 EURO 2,240,000 2,491,151
SCCR Limited
2.588% due 5/15/00 ITL 200,000,000 108,561
--------------
2,599,712
--------------
JAPAN -- 27.6%
- -------------------------------------------------------------------------------
Government of Japan
4.50% due 6/20/03 JPY 10,900,000 119,284
4.10% due 12/22/03 JPY 109,800,000 1,189,403
4.10% due 6/21/04 JPY 462,000,000 5,054,662
4.50% due 12/20/04 JPY 85,700,000 966,337
International Bank
Reconciliation and
Development
4.75% due 12/20/04 JPY 330,000,000 3,765,867
Nippon Tel and Tel CP
2.50% due 7/25/07 JPY 413,000,000 4,158,518
--------------
15,254,071
--------------
NETHERLANDS -- 5.2%
- -------------------------------------------------------------------------------
Kingdom of Netherlands
6.00% due 1/15/06 EURO 2,600,000 2,872,918
--------------
PORTUGAL -- 1.8%
- -------------------------------------------------------------------------------
Republic of Portugal
6.50% due 5/08/00 $ 1,000,000 1,003,000
--------------
SPAIN -- 2.3%
- -------------------------------------------------------------------------------
Government of Spain
6.00% due 1/31/29 EURO 1,185,982 1,254,835
--------------
SWEDEN -- 3.7%
- -------------------------------------------------------------------------------
Kingdom of Sweden
13.00% due 6/15/01 SEK 7,000,000 959,827
6.50% due 5/05/08 SEK 8,500,000 1,085,288
--------------
2,045,115
--------------
UNITED STATES -- 9.1%
- -------------------------------------------------------------------------------
Banc One Auto Grantor
Trust
6.27% due 11/20/03 $ 252,440 251,965
Chase Manhattan Grantor
Trust
6.61% due 9/15/02 $ 203,319 203,509
Federal National
Mortgage
Association
5.50% due 2/25/05 $ 28,343 28,215
Government National
Mortgage Association
6.125% due 4/20/25 $ 502,693 507,409
6.125% due 9/20/26 $ 275,241 277,024
6.125% due 12/20/26 $ 954,006 964,290
6.375% due 9/20/25 $ 490,342 493,716
6.625% due 12/20/25 $ 129,179 130,773
6.625% due 11/20/26 $ 865,609 874,533
32
<PAGE>
FOREIGN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
PRINCIPAL
ISSUER CURRENCY AMOUNT VALUE
- -------------------------------------------------------------------------------
Student Loan Marketing
Association
5.304% due 10/25/04 $ 26,718 $ 26,608
5.394% due 4/25/06 $ 197,391 195,879
United States Treasury
Inflationary Index Notes
3.625% due 7/15/02 $ 104,328 103,676
4.75% due 11/15/08 $ 1,080,000 977,400
--------------
5,034,997
--------------
TOTAL FIXED INCOME
(Identified cost $58,491,370) 56,795,235
--------------
SHORT-TERM OBLIGATIONS
AT AMORTIZED COST-- 15.7%
- -------------------------------------------------------------------------------
State Street Bank & Trust
Repurchase Agreement 4.25%
due 11/1/99 proceeds at
maturity $8,640,000
(Collateralized by $8,816,952
Federal Home Loan Bank,
5.25% due 8/23/01;
valued at $8,816,952) 8,640,000
--------------
TOTAL INVESTMENTS
(Identified cost
$67,131,370) 118.6% 65,435,235
OTHER ASSETS,
LESS LIABILITIES (18.6) (10,247,136)
--------------
NET ASSETS 100.0% $ 55,188,099
--------------
See notes to financial statements
- --------------------------------------------------------------------------------
FOREIGN CURRENCY LEGEND
- --------------------------------------------------------------------------------
SYMBOL COUNTRY
- --------------------------------------------------------------------------------
DKK Denmark
EURO Europe
GRD Greece
ITL Italy
JPY Japan
SEK Sweden
GBP United Kingdom
33
<PAGE>
FOREIGN BOND PORTFOLIO
FORWARD CURRENCY CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 1999 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
UNREALIZED
MARKET AGGREGATE DELIVERY DATE APPRECIATION
CURRENCY COUNTRY VALUE FACE VALUE OF CONTRACTS (DEPRECIATION)
--------- -------- ------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Dollar (Buy) .............. Australia $ 2,977,837 $ 3,057,667 November 1999 $ (79,830)
Dollar (Sell) ............. Australia 1,122,445 1,156,654 November 1999 34,209
Dollar (Sell) ............. Canada 1,834,610 1,848,150 November 1999 13,540
Dollar (Buy) .............. Canada 1,963,712 1,965,986 November 1999 (2,274)
Drachma (Sell) ............ Greece 3,819,620 3,839,631 November 1999 20,011
Drachma (Sell) ............ Greece 1,885,797 1,917,349 November 1999 31,552
Euro (Sell) ............... United States 115,758 116,365 November 1999 607
Euro (Sell) ............... United States 1,736,376 1,769,130 November 1999 32,754
Euro (Buy) ................ United States 420,940 431,480 November 1999 (10,540)
Euro (Sell) ............... United States 642,985 643,716 November 1999 731
Krona (Sell) .............. Sweden 2,058,866 2,063,446 November 1999 4,580
Krone (Sell) .............. Denmark 1,003,793 1,008,521 November 1999 4,728
Pound (Sell) .............. Great Britain 11,814,718 11,835,531 November 1999 20,813
Pound (Buy) ............... Great Britain 6,211,354 6,227,860 November 1999 (16,506)
Yen (Sell) ................ Japan 3,674,727 3,623,463 November 1999 (51,264)
Yen (Sell) ................ Japan 11,280,070 10,986,442 November 1999 (293,628)
Yen (Sell) ................ Japan 4,224,026 4,127,580 November 1999 (96,446)
Yen (Buy) ................. Japan 1,977,612 1,917,349 November 1999 60,263
Yen (Sell) ................ Japan 5,680,355 5,676,324 November 1999 (4,031)
---------
$(330,731)
---------
</TABLE>
PURCHASED OPTIONS WHICH WERE OPEN AT OCTOBER 31, 1999 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
EXPIRATION DATE/
CALL OPTIONS PAR (LOCAL) STRIKE PRICE PREMIUM VALUE
- -------------- ---------- --------------- --------- ------
<S> <C> <C> <C> <C>
USD/EUR 6,480,000 11/8/99 @ .1050 $30,326 $29,353
</TABLE>
34
<PAGE>
FOREIGN BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(Identified Cost, $58,491,370) $56,795,235
Short-term obligations at amortized cost 8,640,000
Foreign currency at value (Cost $85,933) 86,170
Cash 694
Receivable for investments sold 19,038,245
Interest receivable 1,648,443
Receivable for forward contracts 223,788
Receivable for options, at value 29,353
- --------------------------------------------------------------------------------
Total assets 86,461,928
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 30,529,650
Payable for forward contracts 554,519
Payable to affiliates--Management fees (Note 2) 26,610
Accrued expenses 163,050
- --------------------------------------------------------------------------------
Total liabilities 31,273,829
- --------------------------------------------------------------------------------
NET ASSETS $55,188,099
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interest $55,188,099
- --------------------------------------------------------------------------------
FOREIGN BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
INCOME:
Interest (Note 1B) (net of
foreign tax of $129,058) $ 7,136,060
EXPENSES:
Management fees (Note 2) $ 828,560
Custody and fund accounting fees 179,767
Audit fees 36,500
Legal fees 23,293
Trustees fees 6,892
Other 10,859
- --------------------------------------------------------------------------------
Total expenses 1,085,871
- --------------------------------------------------------------------------------
Net investment income 6,050,189
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Unrealized depreciation of investments,
forwards currency contracts,
foreign currency, options and
other assets and liabilities (17,308,962)
Net realized gain from investments and
futures contracts (net of foreign
tax of $69,182) 10,185,327
Net realized loss from forward
currency contracts and
foreign currency transactions (4,234,218)
- --------------------------------------------------------------------------------
Net realized and unrealized loss
on investments and foreign currency (11,357,853)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (5,307,664)
- --------------------------------------------------------------------------------
See notes to financial statements
35
<PAGE>
FOREIGN BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
<S> <C> <C>
Net investment income $ 6,050,189 $ 12,127,813
Net change in unrealized appreciation (depreciation) of investments,
forward currency contracts, foreign currency, futures,
written options and other assets and liabilities (17,308,962) 17,490,716
Net realized gain from investments, forward currency contracts,
and futures 5,951,109 319,290
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,307,664) 29,937,819
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Proceeds from contributions (Note 1) 18,302,383 355,866,842
Value of withdrawals (240,072,098) (103,539,183)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (221,769,715) 252,327,659
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (227,077,379) 282,265,478
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 282,265,478 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $ 55,188,099 $ 282,265,478
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOREIGN BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C>
Net assets, end of period (000's omitted) $55,188 $282,265
Ratio of expenses to average net assets 0.72% 0.74%
Ratio of net investment income to average net assets 3.97% 4.55%
Portfolio turnover 646% 693%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
36
<PAGE>
FOREIGN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Foreign Bond Portfolio (the "Portfolio"), a
separate series of Asset Allocation Portfolios (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, as an 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. Citibank, N.A. ("Citibank") is the Investment
Manager of the Portfolio. Signature Financial Group (Grand Cayman), Ltd. ("SFG")
acts as the Portfolio's Sub-Administrator.
On November 1, 1997 (Commencement of Operations) CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 transferred
a portion of their investable assets in the amounts of $37,806,736, $69,713,620,
$91,158,260, and $19,592,443 including $(434,418), $(669,939), $(836,241), and
$(161,393), respectively, of unrealized depreciation to the Portfolio in
exchange for an interest in the Portfolio. The total investable assets and
contributions are included in the November 1, 1997 (Commencement of Operations)
to October 31, 1998 "Proceeds from contributions" in the Statement of Changes in
Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Foreign bonds and other fixed income
securities (other than short-term obligations maturing in sixty days or less)
are valued on the basis of valuations furnished by a pricing service, 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 under
guidelines established by 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 on 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 when the Portfolio's net asset value is calculated,
such securities may be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
37
<PAGE>
FOREIGN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or accretion of original issue discount and
market discount on debt securities when required for U.S. federal income tax
purposes. Gain and loss from principal paydowns are recorded as interest income.
C. 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, as well as income and
expenses are translated at the prevailing rate of exchange on the respective
dates of such transactions. The Portfolio does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuation arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Translations of foreign currency
include net exchange gains and losses, disposition of foreign currency and the
difference between the amount of investment income and expenses recorded and the
amount actually received or paid.
D. FORWARD FOREIGN CURRENCY Contracts The Portfolio may enter into forward
foreign currency contracts ("contracts") in connection with planned purchases
and 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 counterparties 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. The 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.
E. U.S. FEDERAL TAXES The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
F. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
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. FUTURES CONTRACTS The Portfolio may engage in futures transactions. The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. Buying futures contracts tends to increase the Portfolio's
exposure to the underlying instrument. Selling futures contracts tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other portfolio investments.
38
<PAGE>
FOREIGN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
Upon entering into a futures contract, the Portfolio is required to deposit
with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin".
Subsequent payments ("variation margin") are made or received by the Portfolio
each day, depending on the daily fluctuation of the value of the contract. The
daily changes in contract value are recorded as unrealized gains or losses and
the Portfolio recognizes a realized gain or loss when the contract is closed or
expires. Futures contracts are valued at the settlement price established by the
board of trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities.
H. PURCHASED OPTIONS The premium paid by the Portfolio for the purchase of
a call or a put option is included in the Portfolio's Statement of Assets and
Liabilities as an investment and subsequently "marked to market" to reflect the
current market value of the option. When an option which the Portfolio has
purchased expires on the stipulated expiration date, the Portfolio will realize
a loss in the amount of the cost of the option. When the Portfolio enters into a
closing sale transaction, the Portfolio will realize a gain or loss, depending
on whether the sale proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Portfolio exercises a put option, the
Portfolio will realize a gain or loss from sale of the underlying security and
the proceeds from such sale will be decreased by the premium originally paid.
When the Portfolio exercises a call option, the cost of the security which the
Portfolio purchases upon exercise will be increased by the premium originally
paid.
I. SWAP AGREEMENTS To the extent permitted under respective investment
policies, the Portfolio may invest in swap agreements which involve the exchange
of cash payments based on the specified terms and conditions of such agreements.
A swap is an agreement to exchange the return generated by one instrument for
the return generated by another instrument. The value of each swap is determined
by the counterparty to the swap agreement using a methodology which discounts
the expected future cash receipts or disbursements related to the swap. The
Portfolio may also enter into interest rate swap agreements which involve the
exchange by the Portfolio with another party of their respective commitments to
pay or receive interest, for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Interest
rate swaps are marked to market daily. Unrealized gains or losses are reported
as an
39
<PAGE>
FOREIGN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
asset or a liability in the Statement of Assets and Liabilities. The cash paid
or received on a swap is recognized as a realized loss or gain when such a
payment is paid or received.
Entering into swap agreements involves, to varying degrees, elements of
credit risk, market risk, and interest rate risk in excess of the amount
recognized in the Statement of Assets and Liabilities. Such risks involve the
possibility that there is not a liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform and that
there may be unfavorable changes in market conditions or interest rates.
J. WRITTEN OPTIONS When a Portfolio writes an option, the premium received
by the Portfolio is presented in the Portfolio's Statement of Assets and
Liabilities as an asset with an equivalent liability. The amount of the
liability is subsequently "marked to market" to reflect the current market value
of the option written. Written options are valued at the last sale price or, in
the absence of a sale, the last offering price on the market on which they are
principally traded. If an option expires on its stipulated expiration date, or
if the Portfolio enters into a closing purchase transaction, the Portfolio
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security and
the proceeds of the sale are increased by the premium originally received. If a
written put option is exercised, the amount of the premium originally received
reduces the cost of the security which the Portfolio purchases upon exercise of
the option.
The risk in writing a call option is that the Portfolio relinquishes the
opportunity to profit if the market price of the underlying security increases
and the option is exercised. In writing a put option the Portfolio assumes the
risk of incurring a loss if the market price of the underlying security
decreases and the option is exercised. In addition, there is a risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market, or if the counterparties do not perform under the
contract terms.
K. OTHER Investment transactions are accounted for on the trade date.
Realized gains and losses on investment transactions are determined on the
identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolios. SFG
acts as Sub-Administrator and performs certain duties and receives certain
compensation from Citibank as from time to time are agreed to by Citibank and
SFG. Citibank had delegated the daily management of the Portfolio to Pacific
Investment
40
<PAGE>
FOREIGN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
Management Company, ("PIMCO"), but effective March 1, 1999 Citibank delegated
the daily management of the Portfolio to Salomon Brothers Asset Management
Limited (the "Subadviser"), an affiliate of Citibank. Citibank is a wholly-owned
subsidiary of Citicorp, which in turn is a wholly-owned subsidiary of Citigroup
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc. which was completed on October 8, 1998.
The management fee paid to Citibank amounted to $343,911 for the year ended
October 31, 1999. Citibank management fees are computed at the annual rate of
0.55% of the Portfolio's average daily net assets less the aggregate amount (if
any) payable by the Portfolio Trust pursuant to its Sub-Management Agreement
with the Subadviser. The Portfolio pays the Subadviser a fee which is accrued
daily and payable monthly at an annual rate equal to a percentage of the
aggregate assets of the Portfolio allocated to the Subadviser of 0.30% on the
first $200 million and 0.25% on the remaining assets. These percentages apply
for both PIMCO and Salomon Brothers Asset Management Limited.
The fees paid to the Subadviser amounted to $484,649 of which $284,399 was
paid to PIMCO and $200,250 to Salomon Brothers Asset Management Limited for the
year ended October 31, 1999.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other
than short-term obligations, aggregated $1,057,418,366 and $1,258,710,534,
respectively, for the year ended October 31, 1999.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate Cost $67,282,972
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 553,329
Gross unrealized depreciation (2,401,066)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (1,843,737)
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on borrowings, if any, is charged to the specific portfolio
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 year ended October 31, 1999, the
commitment fee allocated to the Portfolio was $351. Since the line of credit was
established, there have been no borrowings.
41
<PAGE>
FOREIGN BOND PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF ASSET ALLOCATION PORTFOLIO (THE "TRUST"), WITH
RESPECT TO ITS SERIES, FOREIGN BOND PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Foreign Bond Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
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 audit.
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
mis-statement. 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 at
October 31, 1999 by correspondence with the custodian and brokers, 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, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the period indicated in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
42
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
FIXED INCOME -- 95.2%
- --------------------------------------------------------------------------------
DOMESTIC CORPORATIONS -- 93.0%
- --------------------------------------------------------------------------------
AEROSPACE -- 2.1%
- --------------------------------------------------------------------------------
Hexcel Corp.
9.75% due 1/15/09+ $1,000,000 $ 790,000
Sequa Corp.
9.00% due 8/01/09 930,000 904,425
-------------
1,694,425
-------------
AUTOMOTIVE -- 6.0%
- --------------------------------------------------------------------------------
American Axle &
Manufacturing Inc
9.75% due 3/01/09+ 1,250,000 1,240,625
J.H. Heafner Inc.
10.00% due 5/15/08 1,375,000 1,258,125
J.L. French Automotive
Castings
11.50% due 6/01/09+ 1,000,000 987,500
Lear Corp.
8.11% due 5/15/09+ 1,375,000 1,314,790
-------------
4,801,040
-------------
CABLE & OTHER MEDIA -- 11.4%
- --------------------------------------------------------------------------------
Charter Communications
Holdings
8.625% due 4/01/09+ 375,000 354,375
9.92% due 4/01/11+ 3,000,000 1,800,000
CSC Holdings Inc.
9.875% due 2/15/13+ 1,000,000 1,030,000
Frontiervision Holdings LP
11.875% due 9/15/07 2,250,000 1,901,250
Granite Broadcasting Corp.
10.375% due 5/15/05 500,000 511,250
NTL Inc.+
Zero coupon due 4/01/08 2,500,000 1,675,000
Telewest plc
Zero coupon due 10/01/07 2,100,000 1,900,500
-------------
9,172,375
-------------
CAPITAL GOODS/BUILDING PRODUCTS -- 2.5%
- --------------------------------------------------------------------------------
Packard Bioscience Inc. -
Series B
9.375% due 3/01/07 1,000,000 912,500
Jordan Industries Inc. -
Series D
10.375% due 8/01/07 1,125,000 1,051,875
-------------
1,964,375
-------------
CHEMICALS -- 2.8%
- --------------------------------------------------------------------------------
Lyondell Chemical Co.
9.875% due 5/01/07 $1,250,000 1,246,875
Octel Devs plc
10.00% due 5/01/06 1,000,000 990,000
-------------
2,236,875
-------------
CONSUMER PRODUCTS/TOBACCO -- 15.6%
- --------------------------------------------------------------------------------
French Fragrances Inc.
10.375% due 5/15/07 1,270,000 1,168,400
Home Interiors Gifts Inc.
10.125% due 6/01/08 1,910,000 1,556,650
Mail Well Corp.
8.75% due 12/15/08+ 1,000,000 937,500
Revlon Consumer Products
Corp.
8.625% due 2/01/08 875,000 463,750
Revlon Consumer Products
Corp.
9.00% due 11/01/06 1,000,000 790,000
Simmons Co.
10.25% due 3/15/09+ 1,375,000 1,350,937
Triarc Consumer Products
Group
10.25% due 2/15/09+ 2,000,000 1,935,000
United Industries Corp.
9.875% due 4/01/09+ 1,000,000 890,000
United International
Holdings Inc.
10.75% due 2/15/08 3,000,000 1,725,000
Windmere-Durable
Holdings Inc.
10.00% due 7/31/08 1,750,000 1,684,375
-------------
12,501,612
-------------
ENERGY -- 3.0%
- --------------------------------------------------------------------------------
Bellwether Exploration Co.
10.875% due 4/01/07 1,000,000 922,500
Lomak Petroleum Inc.
8.75% due 1/15/07 500,000 450,000
Western Gas Resources
10.00% due 6/15/09+ 1,000,000 1,025,000
-------------
2,397,500
-------------
FINANCIAL -- 3.0%
- --------------------------------------------------------------------------------
Avis Rent A Car Inc.
11.00% due 5/01/09+ 1,000,000 1,033,750
Contifinancial Corp.
8.375% due 8/15/03 2,000,000 400,000
43
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
Williams Scotsman Inc.
9.875% due 6/01/07 $1,000,000 $ 957,500
-------------
2,391,250
FOOD/BEVERAGE/BOTTLING -- 2.5%
- --------------------------------------------------------------------------------
AmeriServe Food
Distributors Inc.
10.125% due 7/15/07 2,000,000 1,140,000
B & G Foods Indications
Corp.
9.625% due 8/01/07 1,000,000 890,000
-------------
2,030,000
GAMING -- 6.0%
- --------------------------------------------------------------------------------
Circus Circus Enterprises Inc.
9.25% due 12/01/05 1,000,000 1,003,750
Majestic Star Casino LLC.
10.875% due 7/01/06+ 1,000,000 950,000
Sun International Ltd.
9.00% due 3/15/07 1,000,000 930,000
Waterford Gaming Finance
Corp. , LLC.+
9.50% due 3/15/10 1,955,000 1,896,350
-------------
4,780,100
-------------
HEALTHCARE -- 2.2%
- --------------------------------------------------------------------------------
Alaris Medical Systems Inc.
9.75% due 12/01/06 1,000,000 800,000
Frensenuis Medical Care
Capital Trust
9.00% due 12/01/06 1,000,000 945,000
-------------
1,745,000
-------------
HOUSING RELATED -- 1.6%
- --------------------------------------------------------------------------------
CB Richards Ellis Services Inc.
8.875% due 6/01/06 1,375,000 1,285,625
-------------
LODGING LEISURE -- 2.2%
- --------------------------------------------------------------------------------
HMH Properties Inc. -
Series C
8.45% due 8/01/08 2,000,000 1,780,000
-------------
METALS/MINING/STEEL -- 2.4%
- --------------------------------------------------------------------------------
P&L Coal Holdings Corp.
8.875% due 5/15/08 2,000,000 1,925,000
-------------
PAPER/FOREST PRODUCTS -- 1.3%
- --------------------------------------------------------------------------------
Tembec Finance Corp.
9.875% due 9/30/05 1,000,000 1,032,500
-------------
PUBLISHING/PRINTING -- 1.8%
- --------------------------------------------------------------------------------
Hollinger International
Publishing Inc.
9.25% due 3/15/07 $1,500,000 1,470,000
-------------
RETAIL -- 4.1%
- --------------------------------------------------------------------------------
Advance Stores Inc.
10.25% due 4/15/08 875,000 805,000
Cole National Group Inc.
8.625% due 8/15/07 2,000,000 1,560,000
Finlay Fine Jewelry Corp.
8.375% due 5/01/08 1,000,000 910,000
-------------
3,275,000
-------------
SERVICES/OTHER -- 7.7%
- --------------------------------------------------------------------------------
Allied Waste North
American Inc.
10.00% due 8/01/09+ 1,000,000 846,250
Integrated Electrical Service
9.375% due 2/01/09+ 1,005,000 969,825
Iron Mountain Inc.
10.125% due 10/01/06 1,000,000 1,020,000
Pierce Leahy Command Co.
8.125% due 5/15/08 1,500,000 1,380,000
Safety Kleen Services Inc.
9.25% due 6/01/08 2,000,000 1,955,000
-------------
6,171,075
-------------
TELECOMMUNICATIONS -- 9.7%
- --------------------------------------------------------------------------------
Energis plc
9.75% due 6/15/09+ 1,000,000 1,015,000
Intermedia Communications Inc.
9.50% due 3/01/09+ 2,000,000 1,850,000
Nextel Communications Inc.
Zero coupon due 10/31/07 1,500,000 1,080,000
Nextel Communications Inc.
9.75% due 8/15/04 1,000,000 1,018,750
Orange plc
9.00% due 6/01/09+ 1,000,000 1,035,000
Price Communications
Wireless Inc. - Series B
9.125% due 12/15/06 750,000 759,375
Rogers Cantel
9.375% due 6/01/08 1,000,000 1,040,000
-------------
7,798,125
-------------
44
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION -- 3.9%
- --------------------------------------------------------------------------------
Coach USA Inc. - Series B
9.375% due 7/01/07 $1,375,000 $ 1,486,719
Continental Airlines Inc.
8.00% due 12/15/05 1,000,000 922,960
Holt Group Inc.
9.75% due 1/15/06+ 1,000,000 680,000
-------------
3,089,679
-------------
UTILITIES -- 1.2%
- --------------------------------------------------------------------------------
Calpine Corp.
7.875% due 4/01/08 1,000,000 947,500
-------------
MORTGAGE OBLIGATIONS -- 2.2%
- --------------------------------------------------------------------------------
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 2.2%
- --------------------------------------------------------------------------------
Airplane Trust
10.875% due 3/15/19 2,000,000 1,776,000
-------------
TOTAL FIXED INCOME
(Identified Cost $84,159,318) 76,265,056
-------------
SHORT-TERM OBLIGATIONS -- 0.7%
- --------------------------------------------------------------------------------
State Street Bank & Trust Repurchase
Agreement 4.25% due 11/01/99
proceeds at maturity $578,000
(collateralized by $590,000
Federal National Mortgage
Association, 4.84% due 11/27/00,
valued at $594,307) 578,000
-------------
TOTAL INVESTMENTS
(Identified Cost
$84,737,318) 95.9% 76,843,056
OTHER ASSETS,
LESS LIABILITIES 4.1 3,309,501
----- -------------
NET ASSETS 100.0% $ 80,152,557
-------------
+ Rule 144A - Security exempt from registration under Rule 144A of the
Securities Act of 1933. As of October 31, 1999 the amount of securities
classified as 144A amounted to 27% of the total net assets. These securities
may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
See notes to financial statements
45
<PAGE>
HIGH YIELD PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $84,737,318) $76,843,056
Cash 355,097
Receivable for investments sold 3,401,802
Interest receivable 2,020,294
- --------------------------------------------------------------------------------
Total assets 82,620,249
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,409,302
Payable to affiliates--Management fees (Note 2) 34,768
Accrued expenses and other liabilities 23,622
- --------------------------------------------------------------------------------
Total liabilities 2,467,692
- --------------------------------------------------------------------------------
NET ASSETS $80,152,557
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $80,152,557
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 3, 1999 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31,1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income (Note 1B) $ 4,467,042
EXPENSES:
Management fees (Note 2) 318,371
Custody and fund accounting fees 32,143
Legal fees 19,354
Audit fees 14,800
Trustees fees 2,627
Other 1,517
- --------------------------------------------------------------------------------
Total expenses 388,812
Less aggregate amounts waived by
the Manager (Note 2) (43,794)
- --------------------------------------------------------------------------------
Net expenses 345,018
- --------------------------------------------------------------------------------
Net investment income 4,122,024
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Unrealized depreciation of investments (7,894,262)
Net realized loss from
investment transactions (568,901)
- --------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (8,463,163)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(4,341,139)
- --------------------------------------------------------------------------------
See notes to financial statements
46
<PAGE>
HIGH YIELD PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
MAY 3, 1999
(COMMENCEMENT
OF OPERATIONS)
TO
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $4,122,024
Net realized loss on investment transactions (568,901)
Unrealized depreciation of investments (7,894,262)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (4,341,139)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 137,682,126
Value of withdrawals (53,188,430)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 84,493,696
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 80,152,557
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $80,152,557
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
MAY 3, 1999
(COMMENCEMENT
OF OPERATIONS)
TO
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $80,153
Ratio of expenses to average net assets 0.70%*
Ratio of net investment income to average net assets 8.42%*
Portfolio turnover 41%
Note: If agents of the Portfolio had not voluntarily waived a portion of their
fees during the period indicated, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 0.79%*
Net investment income to average net assets 8.33%*
- --------------------------------------------------------------------------------
* Annualized
See notes to financial statements
47
<PAGE>
HIGH YIELD PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES High Yield Portfolio (the "Portfolio"), a
separate series of The Premium Portfolios (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as a no-load, 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 Manager of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Sub-Administrator.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Debt securities (other than short-term
obligations maturing in sixty days or less), are valued on the basis of
valuations furnished by pricing services approved by the Board of Trustees which
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. 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 adjusted for
amortization of premium or accretion of original issue discount and market
discount on long-term debt securities when required for U.S. federal income tax
purposes. The Portfolio may place a debt obligation on non-accrual status and
reduce related interest income by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures. A debt obligation is
removed from non-accrual status when the issuer resumes interest payments or
when collectibility of interest is reasonably assured.
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.
48
<PAGE>
HIGH YIELD PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
D. 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.
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
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.
F. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses on investment
transactions are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank
delegated the daily management of the Portfolio to Salomon Brothers Assets
Management Inc. (the "Subadviser") an affiliate of Citibank. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary
of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc. which was completed on October 8, 1998.
The mangement fee paid to Citibank, amounted to $98,840 of which $43,794
was voluntarily waived for the period May 3, 1999 (Commencement of Operations)
to October 31, 1999. Citibank management fees are computed at the annual rate of
0.65% of the Portfolio's average daily net assets less the aggregate amount (if
any) payable by the Portfolio Trust pursuant to the Sub-management Agreement
with the Subadviser. The Portfolio pays the Subadviser the following fees, which
are accrued daily and payable monthly and are at the annual rates equal to a
percentage of the aggregate assets of the Portfolio allocated to the Subadviser
0.45% on first $100 million, 0.40% on remaining assets.
The fees paid to the Sub-adviser amount to $219,531 for the period May 3,
1999 (Commencement of Operations) to October 31, 1999.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
49
<PAGE>
HIGH YIELD PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
3. PURCHASES AND SALES OF INVESTMENTS Purchases and Sales of Investments, other
than short-term obligations, aggregated $100,182,048 and $16,068,328
respectively, for the period ended October 31, 1999.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $84,737,318
- --------------------------------------------------------------------------------
Gross unrealized appreciation $187,414
Gross unrealized depreciation (8,081,676)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(7,894,262)
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Funds collectively to borrow up to $75 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 period ended October 31, 1999, the
commitment fee allocated to the Portfolio was $129. Since the line of credit was
established, there have been no borrowings.
50
<PAGE>
HIGH YIELD PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF THE PREMIUM PORTFOLIO (THE "TRUST"), WITH
RESPECT TO ITS SERIES, HIGH YIELD PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of High Yield Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, and
the related statements of operations and of changes in net assets and the
financial highlights for the period May 3, 1999 (Commencement of Operations)
through October 31, 1999. 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
mis-statement. 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 at
October 31, 1999 by correspondence with the custodian and brokers, 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 October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the period May 3, 1999 (Commencement of Operations) through
October 31, 1999, in accordance with U.S. generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
51
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- -----------------------------------------------------------------
COMMON STOCKS -- 97.7%
- -----------------------------------------------------------------
AUSTRIA -- 1.0%
- -----------------------------------------------------------------
Boehler-Uddeholm 23,753 $ 994,387
------------
AUSTRALIA -- 2.0%
- -----------------------------------------------------------------
Australia & New Zealand
Banking Group 180,725 1,192,705
Pioneer International,
Ltd. 421,090 921,054
------------
2,113,759
------------
CANADA -- 4.2%
- -----------------------------------------------------------------
Imasco, Ltd. 57,162 1,534,003
Manulife Financial Corp. 144,681 1,739,829
Noranda, Inc. 83,370 1,098,837
------------
4,372,669
------------
FINLAND -- 1.3%
- -----------------------------------------------------------------
UPM-Kymmene Oy 44,913 1,417,252
------------
FRANCE -- 9.8%
- -----------------------------------------------------------------
BIC 26,491 1,295,702
BQE National Paris 33,660 2,956,340
LaFarge 9,556 919,710
Pernod-Ricard 25,639 1,731,370
Total 25,404 3,433,674
------------
10,336,796
------------
GERMANY -- 10.1%
- -----------------------------------------------------------------
Buderus AG 64,246 1,081,234
Celanese AG * 5,134 81,003
Commerzbank AG 36,272 1,383,035
Draegerwerk AG 102,551 1,089,469
Dyckerhoff AG 46,150 1,383,472
Hoechst AG 51,341 2,260,027
SGL Carbon * 12,467 797,951
Veba AG 33,039 1,786,256
Vossloh AG 39,304 814,436
------------
10,676,883
------------
GREAT BRITAIN -- 25.4%
- -----------------------------------------------------------------
Allied Domecq 206,225 1,155,542
Allied Zurich 86,924 1,056,967
BAA 145,340 1,062,760
British American
Tobacco p.l.c. 136,414 905,587
British
Telecommunications 78,192 1,418,475
CGU 88,188 1,285,356
Coats Viyella 1,335,566 1,025,976
Cookson Group 477,685 1,466,880
Elementis 770,938 1,304,809
Hanson 162,899 1,268,782
Invensys 198,990 977,671
Lex Service 147,920 1,130,238
Lloyds TSB Group 91,422 1,264,891
Medeva 515,530 1,313,034
National Westminster
Bank 80,021 1,806,679
Reckitt & Colman 113,494 1,376,320
Reed International 98,590 578,351
Safeway 237,916 750,611
TI Group 211,045 1,421,835
Thames Water 4,412 63,798
Tomkins 430,627 1,457,244
United News & Media 138,995 1,332,693
Williams 262,194 1,314,053
------------
26,738,552
------------
HONG KONG -- 2.9%
- -----------------------------------------------------------------
Hang Lung
Development Co. 880,635 946,554
New World
Development Co. 482,790 913,563
South China Morning
Post 1,651,486 1,222,378
------------
3,082,495
------------
IRELAND -- 4.1%
- -----------------------------------------------------------------
Allied Irish Banks 134,945 1,689,108
Greencore Group 392,880 1,128,175
Jefferson Smurfit Group 587,230 1,525,664
------------
4,342,947
------------
ITALY -- 3.3%
- -----------------------------------------------------------------
Eni Spa 281,000 1,643,368
Telecom Italia SPA 73,884 362,928
Telecom Italia SPA 175,400 1,514,700
------------
3,520,996
------------
JAPAN -- 7.0%
- -----------------------------------------------------------------
Nichicon Corp. 58,000 1,257,121
Nintendo Co. 22,500 3,571,257
Promise Co. 21,600 1,450,081
Yodogawa Steel Works 265,000 1,092,836
------------
7,371,295
------------
52
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
ISSUER SHARES VALUE
- -----------------------------------------------------------------
NETHERLANDS -- 8.8%
- -----------------------------------------------------------------
ABN-Amro Holdings NV 50,317 $ 1,216,767
Akzo Nobel NV 40,738 1,754,290
Fortis NL 54,180 1,865,257
ING Groep NV 33,683 1,986,884
Koninklijke PTT 20,276 1,040,559
Philips Electronics NV 13,987 1,434,442
------------
9,298,199
NEW ZEALAND -- 1.7%
- -----------------------------------------------------------------
Telecom Corp. 444,385 1,788,554
------------
PORTUGAL -- 2.0%
- -----------------------------------------------------------------
Portugal
Telecommunications 46,244 2,062,410
------------
SPAIN -- 1.9%
- -----------------------------------------------------------------
Telefonica S.A.* 121,037 1,991,171
------------
SWEDEN -- 2.2%
- -----------------------------------------------------------------
Electrolux AB 64,700 1,290,224
Getinge Industrier 89,472 979,144
------------
2,269,368
------------
SWITZERLAND -- 8.5%
- -----------------------------------------------------------------
Forbo Holdings AG 3,003 1,335,717
Geberit 6,834 2,013,033
Novartis AG 1,348 2,016,296
Saurer AG 2,567 1,077,793
Schweizerische
Industrie-Gesellschaft
Holding AG 2,047 1,208,620
Sulzer AG 1,837 1,289,503
------------
8,940,962
------------
UNITED STATES -- 1.5%
- -----------------------------------------------------------------
Creative Technology Ltd.* 131,246 $ 1,574,952
------------
TOTAL COMMON STOCK
(Identified cost
$100,934,970) 102,893,647
------------
SHORT-TERM OBLIGATIONS -- 1.9%
- -----------------------------------------------------------------
State Street Bank & Trust Repurchase
Agreement 4.25% due 11/01/99 proceeds at
maturity $1,955,000 (collateralized by
$1,995,000 Federal National Mortgage
Association 5.12% due 05/12/00, valued
at $1,994,792) 1,955,000
------------
TOTAL INVESTMENTS
(Identified Cost
$102,889,970) 99.6% $104,848,647
OTHER ASSETS,
LESS LIABILITIES 0.4 444,758
----- ------------
NET ASSETS 100.0% $105,293,405
----- ------------
* Non income producing securities
See notes to financial statements
53
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $102,889,970) $104,848,647
Dividends and interest receivable 229,041
Receivable for investments sold 864,138
- --------------------------------------------------------------------------------
Total assets 105,941,826
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 484,340
Payable to the custodian 73,669
Accrued expenses and other liabilities 90,412
- --------------------------------------------------------------------------------
Total liabilities 648,421
- --------------------------------------------------------------------------------
NET ASSETS $105,293,405
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $105,293,405
- --------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME: (Note 1B)
<S> <C> <C>
Dividend income (net of foreign withholding tax of $557,288) $3,846,132
Interest income 49,915
- ------------------------------------------------------------------------------------------------------------------
Total investment income $ 3,896,047
EXPENSES:
Management fees (Note 2) 1,317,234
Custody and fund accounting fees 245,106
Audit fees 35,890
Legal fees 9,371
Trustees fees 5,714
Other 3,388
- ------------------------------------------------------------------------------------------------------------------
Total expenses 1,616,703
Less aggregate amount waived by the Manager (Note 2) (46,155)
- ------------------------------------------------------------------------------------------------------------------
Net expenses 1,570,548
- ------------------------------------------------------------------------------------------------------------------
Net investment income 2,325,499
- ------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investment transactions 17,944,018
Net realized loss on foreign currency transactions (362,524)
- ------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions
and foreign currency transactions 17,581,494
- ------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments, forward currency
contracts, foreign currency transactions 9,962,721
- ------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain of Investments and
Foreign Currency Transactions 27,544,215
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,869,714
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
54
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,325,499 $ 4,310,814
Net realized gain on investment transactions and
foreign currency transactions 17,581,494 4,002,173
Unrealized appreciation (depreciation) of
investments, forward currency contracts,
foreign currency transactions 9,962,721 (20,091,760)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 29,869,714 (11,778,773)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 9,449,606 593,863,296
Value of withdrawals (164,972,221) (351,138,217)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (155,522,615) 242,725,079
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (125,652,901) 230,946,306
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 230,946,306 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $105,293,405 $230,946,306
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C>
Net assets, end of period (000's omitted) $105,293 $230,946
Ratio of expenses to average net assets 0.95% 0.97%
Ratio of net investment income to
average net assets 1.41% 1.72%
Portfolio turnover 26% 43%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their
fees during the period indicated the ratios would be as follows:
RATIOS:
Expenses to average net assets 0.98% 0.97%
Net investment income to
average net assets 1.38% 1.72%
- ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
55
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES International Portfolio (the "Portfolio"), a
separate series of Asset Allocation 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
Manager of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 (Commencement of Operations) CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 each
transferred a portion of their investable assets in the amounts of $13,468,512,
$45,037,659, $115,488,801 and $69,902,939 including $657,730, $2,460,410,
$6,297,679 and $2,672,891, respectively, of unrealized appreciation to the
Portfolio in exchange for an interest in the Portfolio. The total investable
assets along with the year's contributions are included in the November 1, 1997
(Commencement of Operations) to October 31, 1998 "Proceeds from contributions"
in the Statement of Changes in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities 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) are valued on the basis of valuations furnished by a pricing
service, the use of which has been approved by the Board of 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 under guidelines established by 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 on which
the New York Stock Exchange is closed. If events materially affecting the value
of foreign securities occur between the time when the
56
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
exchange on which they are traded closes and the time when the Portfolio's net
asset value is calculated, such securities may be valued at fair value in
accordance with procedures established by and under the general supervision of
the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on debt securities when
required for U.S. federal income tax purposes. Dividend income and other
distributions from investments are recorded on the ex-dividend date. Dividend
and interest income is recorded net of foreign taxes withheld. Reclaims of
recoverable foreign taxes are the responsibility of the qualified investors.
C. 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, as well as income and
expenses, are translated at the prevailing rate of exchange on the respective
dates of such transactions. The Portfolio does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuation arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Translations of foreign currency
includes net exchange gains and losses, disposition of foreign currency and the
difference between the amount of investment income and expenses recorded and the
amount actually received or paid.
D. FORWARD FOREIGN CURRENCY Contracts The Portfolio may enter into forward
foreign currency 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. The 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.
E. U.S. FEDERAL TAXES The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
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. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses on investment
transactions are determined on the identified cost basis.
57
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG.
Citibank has delegated the daily management of the Portfolio to Hotchkis
and Wiley (the "Subadviser"). Citibank is a wholly-owned subsidiary of Citicorp,
which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fee paid to Citibank, amounted to $547,248, of which $46,155
was voluntarily waived for the year ended October 31, 1999. Management fees are
computed at the annual rate of 0.80% of the Portfolio's average daily net assets
less the aggregate amount, if any, payable by the Portfolio Trust pursuant to
the Sub-management Agreement with the Subadviser. The Portfolio pays the
Subadviser the following fees, which are accrued daily and payable monthly and
are at the annual rates equal to a percentage of the aggregate assets of the
Portfolio allocated to the Subadviser: 0.60%on first $10 million, 0.55% on next
$40 million, 0.45% on next $100 million, 0.35% on next $150 million, 0.30% on
remaining assets.
The management fees paid to the Subadviser amounted to $769,986 for the
year ended October 31, 1999.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $42,039,018 and $192,579,269
respectively, for the year ended October 31, 1999.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $103,766,202
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 12,582,480
Gross unrealized depreciation (11,520,035)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 1,062,445
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 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 year ended October 31, 1999, the
commitment fee allocated to the Portfolio was $389. Since the line of credit was
established, there have been no borrowings.
58
<PAGE>
INTERNATIONAL PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF ASSET ALLOCATION PORTFOLIOS (THE "TRUST"),
WITH RESPECT TO ITS SERIES, INTERNATIONAL PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of International Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
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 the 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, 1999 by correspondence with the custodian and brokers, 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, 1999, 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
