LARGE CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 2000
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS -- 87.9%
--------------------------------------------------------------------------------
CAPITAL GOODS -- 7.4%
--------------------------------------------------------------------------------
Emerson Electric Co. 4,004 $ 294,044
General Electric Co. 5,009 274,557
Honeywell, Inc. 3,000 161,437
United Technologies Corp. 3,200 223,400
-----------
953,438
COMMUNICATION EQUIPMENT
& SERVICES -- 10.8%
--------------------------------------------------------------------------------
AT&T Corp. 7,256 168,248
Alltel Corp. 2,486 160,192
Bellsouth Corp. 3,046 147,160
SBC Communications, Inc. 7,788 449,270
Sprint Corp. 6,481 165,265
Verizon Communications 5,198 300,509
-----------
1,390,644
CONSUMER CYCLICALS -- 3.3%
--------------------------------------------------------------------------------
McGraw-Hill
Companies, Inc. 6,653 427,039
-----------
CONSUMER STAPLES -- 6.7%
--------------------------------------------------------------------------------
Gillette Co. 6,500 226,687
Kimberly-Clark Corp. 3,781 249,546
PepsiCo, Inc. 8,000 387,500
-----------
863,733
ENERGY -- 9.8%
--------------------------------------------------------------------------------
Chevron Corp. 4,603 378,021
Conoco Inc., Class A 10,849 280,040
El Paso Energy Corp. 2,003 125,563
Exxon Mobil Corp. 3,545 316,170
Halliburton Co. 4,111 152,364
-----------
1,252,158
FINANCE -- 18.6%
--------------------------------------------------------------------------------
Bank of America Corp. 6,235 299,670
Chase Manhattan Corp. 7,927 360,679
Chubb Corp. 4,896 413,406
Federal National Mortgage
Association 1,104 85,008
Hartford Financial Services
Group 4,700 349,856
Marsh & McLennan
Companies, Inc. 3,214 420,230
Mellon Financial Corp. 6,611 318,981
Merrill Lynch & Co, Inc. 2,005 140,350
-----------
2,388,180
HEALTHCARE -- 6.7%
--------------------------------------------------------------------------------
American Home
Products Corp. 6,260 397,510
Bristol-Myers Squibb Co. 6,000 365,625
Johnson & Johnson 1,002 92,309
-----------
855,444
RAW & INTERMEDIATE MATERIALS -- 9.0%
--------------------------------------------------------------------------------
Alcoa Inc. 8,167 234,291
Dow Chemical Co. 5,969 182,801
E. I. du Pont de
Nemours & Co. 5,634 255,643
Illinois Tool Works Inc. 2,200 122,237
International Paper Co. 9,798 358,852
-----------
1,153,824
TECHNOLOGY -- 3.9%
--------------------------------------------------------------------------------
First Data Corp. 2,007 100,601
International Business
Machines 2,000 197,000
Pitney Bowes Inc. 6,898 204,784
-----------
502,385
TRANSPORTATION -- 2.7%
--------------------------------------------------------------------------------
Union Pacific Corp. 7,387 346,266
-----------
UTILITIES -- 9.0%
--------------------------------------------------------------------------------
Duke Energy Co. 4,505 389,401
Exelon Corp. 6,023 362,133
Williams Companies Inc. 9,740 407,254
-----------
1,158,788
TOTAL COMMON STOCKS
(Identified Cost
$11,090,455) 11,291,899
-----------
SHORT-TERM OBLIGATIONS -- 12.8%
--------------------------------------------------------------------------------
Student Loan Marketing Discount
Note 6.45% due 11/01/00 1,650,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$12,740,455) 100.7% 12,941,899
OTHER ASSETS,
LESS LIABILITIES (0.7) (91,143)
----- -----------
NET ASSETS 100.0% $12,850,756
===== ===========
See notes to financial statements
1
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $12,740,455)
Cash 593
Dividends receivable 194,301
--------------------------------------------------------------------------------
Total assets 13,136,793
--------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates--Management fees (Note 2) 41,303
Accrued expenses and other liabilities 244,734
--------------------------------------------------------------------------------
Total liabilities 286,037
--------------------------------------------------------------------------------
NET ASSETS $12,850,756
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $12,850,756
================================================================================
LARGE CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
================================================================================
Investment Income: (Note 1B)
Dividend income (net of foreign withholding
tax of $9,600) $4,339,834
Interest income 41,149
--------------------------------------------------------------------------------
$4,380,983
EXPENSES:
Management fees (Note 2) 1,172,965
Custody and fund accounting fees 165,715
Legal fees 60,490
Audit fees 34,200
Trustees fees 12,906
Other 2,187
--------------------------------------------------------------------------------
Total expenses 1,448,463
--------------------------------------------------------------------------------
Net investment income 2,932,520
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 1,518,624
Net unrealized depreciation of investments (540,119)
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 978,505
--------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $3,911,025
================================================================================
See notes to financial statements
2
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
-----------------------------
2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 2,932,520 $ 2,045,703
Net realized gain (loss) on investment
transactions 1,518,624 (9,875,483)
Net unrealized appreciation (depreciation)
of investments (540,119) 2,601,041
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 3,911,025 (5,228,739)
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 13,947,773 249,127,874
Value of withdrawals (280,827,130) (97,340,274)
--------------------------------------------------------------------------------
Net increase(decrease) in net assets
from capital transactions (266,879,357) 151,787,600
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (262,968,332) 146,558,861
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 275,819,088 129,260,227
--------------------------------------------------------------------------------
End of period $ 12,850,756 $275,819,088
================================================================================
LARGE CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1997
OCTOBER 31, (COMMENCEMENT
------------------- OF OPERATIONS) TO
2000 1999 OCTOBER 31, 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $ 12,850 $275,819 $129,260
Ratio of expenses to average net assets 0.74% 0.75% 0.78%
Ratio of net investment income to
average net assets 1.50% 1.34% 1.20%
Portfolio turnover 18% 74% 61%
================================================================================
See notes to financial statements
3
<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").
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 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.
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. There were
no repurchase agreements held by the Portfolio at October 31, 2000.
4
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank. 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. Citibank
has delegated the daily management of the Portfolio to SSBCiti Fund Management
LLC (the "Subadviser"), an affiliate of Citibank. Citibank is a wholly-owned
subsidiary of Citigroup Inc.
The management fees paid to Citibank amounted to $519,562 for the year
ended October 31, 2000. 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
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
Subadviser: 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 Subadviser amounted to $653,403 for the year ended October 31, 2000.
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 investments, other
than short-term obligations, aggregated $33,541,422 and $293,744,511,
respectively, for the year ended October 31, 2000.
5
<PAGE>
LARGE 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, 2000,
as computed on a federal income tax basis, are as follows:
Aggregate cost $12,740,455
================================================================================
Gross unrealized appreciation $ 1,469,197
Gross unrealized depreciation (1,267,753)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 201,444
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Funds and Portfolios
in the family of funds, entered into an ongoing line of credit agreement with a
bank which allows the Funds and 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 or 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, 2000, the commitment fee allocated to the
Portfolio was $590. Since the line of credit was established, there have been no
borrowings.
6. SUBSEQUENT EVENT The Portfolio is expected to cease its operations on or
about December 15, 2000 and remit any remaining capital balances to existing
holders of beneficial interest in Portfolio at such time of liquidation.
6
<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, at October 31, 2000, 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 auditing standards generally
accepted in the United States of America. 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 securities at October 31, 2000 by correspondence with the
custodian, 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 at October 31, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
As more fully described in Note 6, the Portfolio is expected to cease
operations and liquidate on or about December 15, 2000.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 2000
7
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 2000
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
FIXED INCOME -- 102.8%
--------------------------------------------------------------------------------
DOMESTIC CORPORATIONS -- 100.5%
--------------------------------------------------------------------------------
AEROSPACE-- 2.8%
--------------------------------------------------------------------------------
Hexcel Corp.
9.75% due 1/15/09+ $ 63,000 $ 58,275
Sequa Corp.
9.00% due 8/01/09 55,000 53,625
-----------
111,900
-----------
AUTOMOTIVE -- 2.6%
--------------------------------------------------------------------------------
Federal Mogul Corp.
7.50% due 1/15/09 63,000 15,750
J.L. French Automotive Castings
11.50% due 6/01/09+ 55,000 32,450
Lear Corp.
8.11% due 5/15/09+ 63,000 56,508
-----------
104,708
-----------
CABLE & OTHER MEDIA -- 13.5%
--------------------------------------------------------------------------------
CSC Holdings Inc.
9.875% due 2/15/13+ 63,000 64,260
Charter Communications Holdings*
9.92% due 4/01/11+ 126,000 72,450
Frontiervision Holdings LP
11.875% due 9/15/07 126,000 107,730
JH Heafner Co.
10.00% due 05/15/08 173,000 27,680
NTL Inc.
Zero Coupon
due 4/01/08+ 252,000 146,160
Telewest plc
Zero Coupon
due 10/01/07 108,000 95,040
Telewest Communications
Zero Coupon
due 04/15/09 47,000 23,030
-----------
536,350
-----------
CAPITAL GOODS/BUILDING PRODUCTS-- 3.3%
--------------------------------------------------------------------------------
Jordan Industries Inc.-
Series D
10.375% due 8/01/07 141,000 131,130
-----------
CHEMICALS -- 2.6%
--------------------------------------------------------------------------------
Aqua Chemicals Inc.
11.25% due 7/01/08 39,000 26,520
Lyondell Chemical Co.
9.875% due 5/01/07 47,000 45,825
Radnor Holdings Corp.
10.00% due 12/01/03 33,000 29,205
-----------
101,550
-----------
CONSUMER PRODUCTS/TOBACCO -- 13.7%
--------------------------------------------------------------------------------
French Fragrances Inc.
10.375% due 5/15/07 66,000 64,350
Home Interiors Gifts Inc.
10.125% due 6/01/08 90,000 29,700
Mail Well Corp.
8.75% due 12/15/08 63,000 46,620
Polaroid Corp.
11.50% due 2/15/06 33,000 26,070
Revlon Consumer
Products Corp.
9.00% due 11/01/06 126,000 89,460
Simmons Co.
10.25% due 3/15/09 16,000 14,880
Triarc Consumer
Products Group
10.25% due 2/15/09+ 63,000 70,245
United Industries Corp.
9.875% due 4/01/09+ 126,000 52,762
United International
Holdings Inc.
10.75% due 2/15/08 252,000 151,200
-----------
545,287
-----------
ENERGY -- 8.0%
--------------------------------------------------------------------------------
Canadian First Oil Ltd
8.75% due 9/15/07 63,000 60,795
Key Energy Services Inc.
14.00% due 1/15/09 38,000 42,940
Lomak Petroleum Inc.
8.75% due 1/15/07 63,000 59,063
Plains Resources Inc.
10.25% due 3/15/06+ 54,000 54,270
Snyder Oil Corp.
8.75% due 6/15/07 33,000 34,054
Western Gas Resources
10.00% due 6/15/09+ 65,000 67,600
-----------
318,722
-----------
8
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 2000
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
FINANCIAL -- 3.0%
--------------------------------------------------------------------------------
Avis Group Holdings Inc.
11.00% due 5/01/09+ $ 63,000 $ 67,095
Contifinancial Corp.
8.375% due 8/15/03++ 252,000 34,650
Derby Cycle Corp.
Lyon Investments
10.00% due 5/15/08 66,000 16,500
-----------
118,245
-----------
FOOD/BEVERAGE/BOTTLING -- 2.2%
--------------------------------------------------------------------------------
B & G Foods
Indications Corp.
9.625% due 8/01/07 126,000 88,515
-----------
GAMING -- 8.8%
--------------------------------------------------------------------------------
Harrahs Operations Inc.
7.875% due 12/15/05 60,000 58,200
MGM Grand Inc.
9.75% due 6/01/07 23,000 23,834
Majestic Star Casino LLC
10.875% due 7/01/06+ 63,000 55,440
Sun International Ltd
9.00% due 3/15/07 96,000 89,640
Waterford Gaming
Finance Corp. , LLC
9.50% due 3/15/10+ 124,000 121,210
-----------
348,324
-----------
HEALTHCARE -- 3.2%
--------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust
9.00% due 12/01/06 63,000 61,740
Tenet Healthcare Corp.
9.25% due 1/01/10 63,000 65,992
-----------
127,732
-----------
HOUSING RELATED -- 1.4%
--------------------------------------------------------------------------------
CB Richard Ellis Services Inc.
8.875% due 6/01/06 63,000 54,653
-----------
INDUSTRIAL -- 0.6%
--------------------------------------------------------------------------------
Psinet Inc.
11.50% due 11/01/08 49,000 24,500
-----------
LODGING/LEISURE -- 3.7%
--------------------------------------------------------------------------------
HMH Properties Inc.-
Series C
8.45% due 12/01/08 126,000 119,385
Moll Industries Inc.
10.50% due 6/01/08 96,000 25,920
-----------
145,305
-----------
METALS/MINING/STEEL -- 2.6%
--------------------------------------------------------------------------------
Owens Illinois Inc.
7.50% due 5/15/10 63,000 41,580
P&L Coal Holdings Corp.
8.875% due 5/15/08 63,000 62,055
-----------
103,635
-----------
PAPER/FOREST PRODUCTS -- 1.6%
--------------------------------------------------------------------------------
Tembec Finance Corp.
9.875% due 9/30/05 63,000 63,630
-----------
PUBLISHING/PRINTING -- 3.1%
--------------------------------------------------------------------------------
Hollinger International
Publishing Inc.
9.25% due 3/15/07 126,000 124,740
-----------
RETAIL -- 4.3%
--------------------------------------------------------------------------------
Acetex
9.75% due 10/01/03 33,000 30,855
Cole National Group Inc.
8.625% due 8/15/07 33,000 19,800
Finlay Fine Jewelry Corp.
8.375% due 5/01/08 126,000 114,975
Key Plastics Inc.
10.25% due 3/15/07++ 63,000 5,828
-----------
171,458
-----------
SERVICES/OTHER -- 4.3%
--------------------------------------------------------------------------------
Allied Waste
North American Inc.
10.00% due 8/01/09+ 63,000 53,235
Integrated Electrical Service
9.375% due 2/01/09+ 62,000 55,180
Pierce Leahy Command Co.
8.125% due 5/15/08 63,000 58,511
Safety Kleen Services Inc.
9.25% due 6/01/08++ 126,000 2,047
-----------
168,973
-----------
TELECOMMUNICATIONS -- 11.5%
--------------------------------------------------------------------------------
Global Crossing Holdings Ltd
9.15% due 11/15/06 47,000 44,885
9.50% due 11/15/09 16,000 15,240
ICG Holdings Inc.
Zero Coupon
due 5/01/06* 54,000 8,100
9
<PAGE>
HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 2000
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
TELECOMMUNICATIONS -- (CONT'D)
--------------------------------------------------------------------------------
Intermedia
Communications Inc.
9.50% due 3/01/09+ $ 63,000 $ 61,425
Leap Wireless
International Inc.
12.50% due 4/15/10+ 33,000 23,100
Nextel Communications Inc.
Zero Coupon
due 10/31/07 189,000 145,530
Price Communications
Wireless Inc. Series B
9.125% due 12/15/06 96,000 95,520
Rogers Cantel
9.375% due 6/01/08 63,000 63,630
-----------
457,430
TRANSPORTATION -- 0.4%
--------------------------------------------------------------------------------
Holt Group Inc.
9.75% due 1/15/06+ 126,000 16,537
-----------
UTILITIES -- 3.3%
--------------------------------------------------------------------------------
Azurix Corp.
10.75% due 2/15/10+ 63,000 57,330
Calpine Corp.
7.875% due 4/01/08 79,000 75,155
-----------
132,485
MORTGAGE OBLIGATIONS -- 2.3%
--------------------------------------------------------------------------------
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 2.3%
--------------------------------------------------------------------------------
Airplane Trust
10.875% due 3/15/19 123,700 93,323
-----------
TOTAL FIXED INCOME
(Identified Cost $5,389,362) 4,089,132
ISSUER WARRANTS VALUE
--------------------------------------------------------------------------------
WARRANTS -- 0.1%
--------------------------------------------------------------------------------
Leap Wireless International Inc.
8.00% Expires 4/15/10
(Identified Cost $75,992) 250 $ 2,000
-----------
Total Investments
(Identified Cost
$5,465,354) 102.8% 4,091,132
Other Assets,
Less Liabilities (2.8) (112,674)
----- -----------
Net Assets 100.0% $ 3,978,458
===== ===========
+ Rule 144A - Security exempt from registration under Rule 144A of the
Securities Act of 1933. As of October 31, 2000 the amount of securities
classified as 144A amounted to 29.8% of the total net assets. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers.
++ Bond is in default
* Step bond
See notes to financial statements
10
<PAGE>
HIGH YIELD PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $5,465,354) $ 4,091,132
Interest receivable 132,657
--------------------------------------------------------------------------------
Total assets 4,223,789
--------------------------------------------------------------------------------
LIABILITIES:
Payable to the custodian 219,017
Payable to affiliates--Management fees (Note 2) 8,865
Accrued expenses and other liabilities 17,449
--------------------------------------------------------------------------------
Total liabilities 245,331
--------------------------------------------------------------------------------
NET ASSETS $ 3,978,458
--------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $ 3,978,458
================================================================================
HIGH YIELD PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income (Note 1B) $ 5,812,970
EXPENSES:
Management fees (Note 2) $ 342,424
Custody and fund accounting fees 70,748
Legal fees 18,803
Audit fees 7,990
Trustees fees 6,165
Other 4,829
-------------------------------------------------------------------------------
Total expenses 450,959
Less aggregate amounts waived by the Manager (Note 2) (82,184)
-------------------------------------------------------------------------------
Net expenses 368,775
-------------------------------------------------------------------------------
Net investment income 5,444,195
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (5,994,878)
Unrealized appreciation of investments 6,520,040
-------------------------------------------------------------------------------
Net realized and unrealized gain on investments 525,162
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,969,357
-------------------------------------------------------------------------------
See notes to financial statements
11
<PAGE>
HIGH YIELD PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
MAY 3, 1999
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
OCTOBER 31, TO
2000 OCTOBER 31, 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 5,444,195 $ 4,122,024
Net realized loss on investment transactions (5,994,878) (568,901)
Unrealized appreciation (depreciation)
of investments 6,520,040 (7,894,262)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 5,969,357 (4,341,139)
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 476,753 137,682,126
Value of withdrawals (82,620,209) (53,188,430)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital transactions (82,143,456) 84,493,696
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (76,174,099) 80,152,557
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 80,152,557 --
--------------------------------------------------------------------------------
End of period $ 3,978,458 $ 80,152,557
================================================================================
HIGH YIELD PORTFOLIO
FINANCIAL HIGHLIGHTS
================================================================================
FOR THE PERIOD
MAY 3, 1999
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
OCTOBER 31, TO
2000 OCTOBER 31, 1999
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $3,978 $80,153
Ratio of expenses to average net assets 0.70% 0.70%*
Ratio of net investment income to average
net assets 10.33% 8.42%*
Portfolio turnover 42% 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 0.86% 0.79%*
Net investment income to average net assets 10.17% 8.33%*
================================================================================
*Annualized
See notes to financial statements
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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").
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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.
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<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. 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. Citibank
delegated the daily management of the Portfolio to Salomon Brothers Asset
Management Inc. (the "Subadviser"), an affiliate of Citibank. Citibank is a
wholly-owned subsidiary of Citigroup Inc.
The management fee paid to Citibank, amounted to $104,604, of which $82,184
was voluntarily waived for the year ended October 31, 2000. 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 Subadviser amounted to $237,820 for the
year ended October 31, 2000.
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<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 $20,669,298 and $99,363,262,
respectively, for the year ended October 31, 2000.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 2000,
as computed on a federal income tax basis, are as follows:
Aggregate cost $ 5,465,354
================================================================================
Gross unrealized appreciation $ 33,386
Gross unrealized depreciation (1,407,608)
-------------------------------------------------------------------------------
Net unrealized depreciation $(1,374,222)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Funds and Portfolios
in the family of funds, entered into an ongoing line of credit agreement with a
bank which allows the Funds and 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 or 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, 2000, the commitment fee allocated to the
Portfolio was $155. Since the line of credit was established, there have been no
borrowings.
6. SUBSEQUENT EVENT The Portfolio is expected to cease its operations on or
about December 15, 2000 and remit any remaining capital balances to existing
holders of beneficial interest in Portfolio at such time of liquidation.
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<PAGE>
HIGH YIELD PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF THE PREMIUM PORTFOLIOS (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, at October 31, 2000, 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 auditing standards generally
accepted in the United States of America. 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 securities at October 31, 2000 by correspondence with the
custodian, 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 at October 31, 2000 and the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
As more fully described in Note 6, the Portfolio is expected to cease
operations and liquidate on or about December 15, 2000.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 2000
16