Annual Report o December 31, 1998
CitiFunds(SM)
Balanced Portfolio
[GRAPHIC]
GROWTH WITH INCOME
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INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Portfolio Highlights 4
................................................................................
Fund Performance 5
................................................................................
CitiFunds Balanced Portfolio
Statement of Assets and Liabilities 6
................................................................................
Statement of Operations 6
................................................................................
Statement of Changes in Net Assets 7
................................................................................
Financial Highlights 8
................................................................................
Notes to Financial Statements 9
................................................................................
Independent Auditors' Report 13
................................................................................
Balanced Portfolio
Portfolio of Investments 14
................................................................................
Statement of Assets and Liabilities 18
................................................................................
Statement of Operations 18
................................................................................
Statement of Changes in Net Assets 19
................................................................................
Financial Highlights 19
................................................................................
Notes to Financial Statements 20
................................................................................
Independent Auditors' Report 24
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholders:
This annual report covers the period from January 1, 1998, through December
31, 1998, for the CitiFundsSM Balanced Portfolio. Inside, the CitiFunds'
investment manager, Citibank, N.A., discusses the market conditions it faced,
the strategies it employed and its outlook for the future.
Much of the 12-month period saw a continuation of generally positive
economic conditions in the United States. Low inflation and declining interest
rates were generally positive influences on large-capitalization stocks and
high-quality bonds. However, the value-oriented stocks in which the Portfolio
invests did not fare as well.
Some financial markets, especially smaller and international stocks,
experienced heightened turbulence in 1998. In our view, the recent market
volatility once again confirms the benefits of diversification. By allocating
your investment assets among a number of different markets, you may be able to
reduce the effects of volatility on your overall portfolio. In our view,
CitiFunds Balanced Portfolio can play a valuable role in such a diversified
investment portfolio.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
Philip W. Coolidge
President
January 20, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
CitiFunds Balanced Portfolio provided positive returns during 1998.
Approximately 40% of the Portfolio's assets is allocated to the bond market,
which benefited from low inflation and declining interest rates. The remaining
60% of the Fund's total assets were allocated to stocks. Our equity holdings
emphasize the stocks of established companies that we believe are priced
inexpensively relative to their future prospects.
Persistently low inflation and declining long-term interest rates helped
support prices of both stocks and bonds during the first half of the year.
Despite the credit and currency crisis in Asia, U.S. investors appeared to
disregard warnings that economic weakness overseas might reduce corporate
earnings growth in the United States. The U.S. stock market rose to new highs,
while bond prices remained relatively stable amid concerns that the economy may
have been growing too robustly.
Around mid-year, however, the global currency and credit crisis spread from
Asia to Russia and Latin America. Investors reacted by selling investments that
they perceived as risky. Stocks of large, global companies that are considered
sensitive to the economic cycle were punished in this "flight to quality," as
were energy producers, agricultural companies, commodities producers and
financial services companies. Because companies within these sectors had already
appeared inexpensive relative to companies in other areas of the U.S. stock
market, they represented a significant part of the Portfolio's stock holdings.
The effects of the third quarter stock market correction on the Portfolio
were offset by our bond holdings. Concerns about a potentially overheating U.S.
economy were replaced by fears of an economic slow-down. Because slower growth
helps reduce inflation pressures, bond prices benefited. In addition,
risk-averse investors in the U.S. and overseas flocked to the relative "safe
haven" of U.S. Treasury securities. As a result, yields on long-term U.S.
Treasury bonds fell to their lowest levels in more than 30 years, creating
substantial price gains for existing bondholders.
Our stock selection process carefully evaluates the fundamental prospects
of companies whose stocks are selling at low prices relative to historical
measures. This approach led us to invest in certain sectors of the market,
including energy producers and other economically sensitive companies, which
started out the year with good relative valuations. However, these groups
generally lagged the overall market during the correction. We attempted to add
value in this difficult stock market environment by adding some companies that
we consider defensive investments, including utilities and selected telephone
companies. These companies are generally more likely to maintain their values
than other types of stocks because of their high dividend yields and the
consistency of their revenue streams. In addition, we de-emphasized some of the
hardest-hit industries, including financial services.
2
<PAGE>
In the bond portion of the Portfolio, we maintained our average duration -
a measure of sensitivity to changing interest rates toward the long end of its
range. Accordingly, we were able to maintain higher yields as interest rates
fell. In addition, before the flight to quality, we had shifted assets from
corporate and mortgage-backed securities to U.S. Treasury securities in
anticipation of lower interest rates. As a result, we participated strongly in
this past summer's rally of the Treasury market.
Our outlook for both stocks and bonds remains positive. Our economic
outlook calls for slow growth, low inflation and an accommodative monetary
policy. Historically, these types of conditions have been favorable for most
bonds, but not necessarily for corporate earnings and stocks. What's more,
because many value-oriented stocks remain priced near recessionary levels, we
are confident that value stocks hold the potential for healthy gains even in a
slow-growth environment. That's why we believe that our balanced portfolio of
value-oriented stocks and high-quality bonds should continue to serve
shareholders well in 1999 and beyond.
FUND FACTS
Fund Objective
To earn high current income by investing in a broad range of securities, to
preserve capital and to provide growth potential with reduced risk.
Investment Adviser, Dividends
Balanced Portfolio Paid quarterly, if any
Citibank, N.A.
Commencement of Operations Capital Gains
October 19, 1990 Distributed semi-annually, if any
Net Assets as of 12/31/98 Benchmarks
$236.4 million o Standard and Poor's Barra Value
Index
o Lehman Aggregate Bond Index
o Lipper Balanced Funds Average
3
<PAGE>
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
Top Ten Equity Holdings as of December 31, 1998
Company, Industry % of Net Assets
AT&T Corp., Consumer Services 3.2%
................................................................................
Chase Manhattan Corp., Finance 2.2%
................................................................................
Morgan Stanley Dean Witter; Finance 2.2%
................................................................................
Mobil Corp., Producer Manufacturing 1.8%
................................................................................
Safeco Corp., Finance 1.7%
................................................................................
Philip Morris Cos Inc.; Basic Industries 1.7%
................................................................................
Bank One Corp.; Finance 1.6%
................................................................................
Exxon Corp., Producer Manufacturing 1.6%
................................................................................
Martin Marietta Materials Inc.; Miscellaneous 1.6%
................................................................................
SBC Communications Inc.; Consumer Services 1.5%
Portfolio Diversification as of December 31, 1998
[THE FOLLOWING TABLE WAS PRESENTED AS A PIE CHART IN THE PRINTED DOCUMENT]
Stocks 58.0%
Treasuries 14.0%
Other Bonds 26.0%
*Short Term 2.0%
* includes cash and net other assets.
4
<PAGE>
FUND PERFORMANCE
Total Returns
Since
One Five 10/19/90
All Periods Ended December 31, 1998 Year Years* Inception*
================================================================================
CitiFunds Balanced Portfolio 7.83% 10.99% 12.79%
Lipper Balanced Funds Average 13.48% 13.84% 14.16%+
S&P Barra Value Index 42.15% 27.91% 23.31%+
Lehman Aggregate Bond Index 9.47% 7.30% 9.20%+
* Average Annual Total Return
+ From 10/31/90
30-Day SEC Yield 2.65%
Income Dividends Per Share $0.380
Capital Gain Distribution $2.365
Growth of $10,000 Investment
A $10,000 investment in the Fund made on 10/31/90 would have grown to $26,839 as
of 12/31/98. The graph shows how the Fund compares to its benchmarks for the
same period.
[THE FOLLOWING TABLE WAS PRESENTED AS A LINE CHART IN THE PRINTED DOCUMENT]
Lipper Lehman
CitiFunds Balanced S&P Barra Aggregate
Balanced Funds Value Index Bond Index
Date Portfolio Average (unmanaged) (unmanaged)
- ---- --------- ------- ----------- -----------
10/31/90 $10,000 $10,000 $10,000 $10,000
12/31/91 $13,751 $13,358 $15,140 $12,042
12/31/92 $14,690 $14,357 $15,907 $12,955
12/31/93 $15,935 $15,869 $16,174 $14,388
12/31/94 $15,607 $15,454 $16,680 $13,883
12/31/95 $19,144 $19,295 $23,039 $16,555
12/31/96 $20,597 $21,913 $28,564 $17,033
12/31/97 $24,891 $26,034 $39,002 $18,694
12/31/98 $26,840 $29,515 $55,413 $20,466
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Note: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors. Returns reflect certain voluntary fee
waivers. If the waivers were not in place, the Fund's return would have been
lower.
Total returns and yields do not reflect initial sales charges in effect as of
January 4, 1999. If sales charges had been in effect during periods prior to
December 31, 1998, the Fund's total returns and yield would have been lower.
5
<PAGE>
CitiFunds Balanced Portfolio
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
================================================================================
Assets:
Investment in Balanced Portfolio, at value (Note 1A) $235,660,734
Receivable for shares of beneficial interest sold 1,096,334
- --------------------------------------------------------------------------------
Total assets 236,757,068
- --------------------------------------------------------------------------------
Liabilities:
Payable for shares of beneficial interest repurchased 305,616
Payable to affiliates - Shareholder servicing agents'
fees (Note 2B) 49,246
Accrued expenses and other liabilities 43,340
- --------------------------------------------------------------------------------
Total liabilities 398,202
- --------------------------------------------------------------------------------
Net Assets for 16,595,499 shares of beneficial interest
outstanding $236,358,866
================================================================================
Net Assets Consist of:
Paid-in capital $223,292,653
Unrealized appreciation of investments 13,349,703
Accumulated net realized loss (891,621)
Undistributed net investment income 608,131
- --------------------------------------------------------------------------------
Total $236,358,866
================================================================================
Net Asset Value, Offering Price and Redemption Price
Per Share of Beneficial Interest (Note 7) $14.24
================================================================================
CitiFunds Balanced Portfolio
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
================================================================================
Investment Income (Note 1B):
Interest Income from Balanced Portfolio $ 5,923,820
Dividend Income from Balanced Portfolio 2,476,289
Allocated Expenses from Balanced Portfolio (1,272,207)
- --------------------------------------------------------------------------------
$ 7,127,902
- --------------------------------------------------------------------------------
Expenses:
Shareholder Servicing Agents' fees (Note 2B) 577,968
Administrative fees (Note 2A) 577,968
Distribution fees (Note 3) 346,780
Expense fees (Note 6) 46,721
- --------------------------------------------------------------------------------
Total expenses 1,549,437
Less aggregate amount waived by Administrator and
Distributor (Note 2A and 3) (462,905)
- --------------------------------------------------------------------------------
Net expenses 1,086,532
- --------------------------------------------------------------------------------
Net investment income 6,041,370
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) from
Balanced Portfolio:
Net realized gain 26,888,409
Unrealized depreciation on investments (15,478,163)
- --------------------------------------------------------------------------------
Net realized and unrealized gain from Balanced Portfolio 11,410,246
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $17,451,616
================================================================================
See notes to financial statements
6
<PAGE>
CitiFunds Balanced Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997
===================================================================================================
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 6,041,370 $ 5,566,995
Net realized gain 26,888,409 31,219,711
Unrealized appreciation (depreciation) on investments (15,478,163) 6,454,406
------------------------------
Net increase in net assets resulting from operations 17,451,616 43,241,112
------------------------------
Distributions to Shareholders from:
Net investment income (5,439,336) (5,565,112)
Net realized gain (34,018,101) (32,774,535)
------------------------------
Decrease in net assets from distributions to
shareholders (39,457,437) (38,339,647)
------------------------------
Transactions in Shares of Beneficial Interest (Note 5):
Net proceeds from sale of shares 23,637,486 1,958,850
Net asset value of shares issued to shareholders
from reinvestment of distributions 39,433,879 38,314,267
Cost of shares repurchased (31,497,141) (48,766,609)
------------------------------
Net increase (decrease) in net assets from transactions
in shares of beneficial interest 31,574,224 (8,493,492)
------------------------------
Net Increase (Decrease) in Net Assets 9,568,403 (3,592,027)
------------------------------
Net Assets:
Beginning of period 226,790,463 230,382,490
------------------------------
End of period (including undistributed net investment
income of $608,131 and $6,097, respectively) $ 236,358,866 $ 226,790,463
===================================================================================================
</TABLE>
See notes to financial statements
7
<PAGE>
CitiFunds Balanced Portfolio
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994+
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 15.77 $ 15.61 $ 15.71 $ 13.52 $ 14.24
- ------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.420 0.421 0.497 0.486 0.399
Net realized and
unrealized gain (loss) 0.795 2.726 0.680 2.540 (0.695)
- ------------------------------------------------------------------------------------------------------------------
Total from operations 1.215 3.147 1.177 3.026 (0.296)
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.380) (0.421) (0.497) (0.495) (0.394)
Net realized gain (2.365) (2.566) (0.780) (0.341) (0.030)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (2.745) (2.987) (1.277) (0.836) (0.424)
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.24 $ 15.77 $ 15.61 $ 15.71 $ 13.52
==================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) $ 236,359 $ 226,790 $ 230,382 $ 246,002 $ 227,309
Ratio of expenses to
average net assets (A) 1.02% 1.02% 1.02% 1.02% 1.02%
Ratio of net investment income to
average net assets 2.61% 2.44% 3.04% 3.21% 2.82%
Portfolio turnover (B) -- -- -- -- 29%
Total return (C) 7.83% 20.85% 7.59% 22.66% (2.06%)
Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net
investment income per share and the ratios would have been as follows:
Net investment income $ 0.390 $ 0.387 $ 0.464 $ 0.463 $ 0.378
Ratios:
Expenses to average net assets 1.22%(A) 1.22%(A) 1.22%(A) 1.17%(A) 1.17%(A)
Net investment income to
average net assets 2.41% 2.24% 2.84% 3.06% 2.67%
==================================================================================================================
</TABLE>
(A) Includes the Fund's share of Balanced Portfolio allocated expenses for the
periods indicated.
(B) Portfolio turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
(C) Total return does not include the maximum sales charge of 5.00% effective
January 4, 1999.
+ On May 1, 1994 the Fund began investing all of its investable assets in
Balanced Portfolio.
See notes to financial statements
8
<PAGE>
CitiFunds Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies CitiFunds Balanced Portfolio (formerly
Landmark Balanced Fund) (the "Fund") is a separate diversified series of
CitiFunds Trust I (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund invests all of its investable assets in
Balanced Portfolio (the "Portfolio"), a management investment company for which
Citibank, N.A. ("Citibank") serves as Investment Adviser. The value of such
investment reflects the Fund's proportionate interest (88.9% at December 31,
1998) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the
Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator
and makes Fund shares available to customers as Shareholder Servicing Agent.
Citibank 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 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 financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The significant accounting policies consistently followed by the Fund are
as follows:
A. Investment Valuation Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. Investment Income The Fund earns income, net of Portfolio expenses,
daily based on its investment in the Portfolio.
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary.
D. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. Distributions Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may dif-
9
<PAGE>
CitiFunds Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
fer from generally accepted accounting principles. These differences are
attributable to permanent book and tax accounting differences. Reclassifications
are made to the Fund's capital accounts to reflect income and net realized gains
available for distribution (or available capital loss carryovers) under income
tax rules and regulations.
F. Other All the net investment income, realized and unrealized gain and
loss of the Portfolio is allocated pro rata, based on respective ownership
interests, among the Fund and the other investors in the Portfolio at the time
of such determination. Investment transactions are accounted for on the trade
date basis. Realized gains and losses are determined on the identified cost
basis.
2. Administrative Services Plan The Trust has adopted an Administrative
Services Plan (the "Administrative Services Plan") which provides that the
Trust, on behalf of the Fund, may obtain the services of an Administrator, one
or more Shareholder Servicing Agents and other Servicing Agents and may enter
into agreements providing for the payment of fees for such services. Under the
Trust Administrative Services Plan, the aggregate of the fee paid to the
Administrator from the Fund, the fees paid to the Shareholder Servicing Agents
from the Fund under such Plan and the Basic Distribution Fee paid from the Fund
to the Distributor under the Distribution Plan may not exceed 0.65% of the
Fund's average daily net assets on an annualized basis for the Fund's then
current fiscal year.
A. Administrative Fees Under the terms of an Administrative Services
Agreement, the administrative fees paid to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $577,968, of which $231,585 was voluntarily
waived for the year ended December 31, 1998. Citibank acts as Sub-Administrator
and performs certain duties and receives compensation from CFBDS from time to
time as agreed to by CFBDS and Citibank. The Fund pays no compensation directly
to any officer who is affiliated with the Administrator, all of whom receive
remuneration for their services to the Fund from the Administrator or its
affiliates. Certain of the officers and a Trustee of the Fund are officers or
directors of the Administrator or its affiliates.
10
<PAGE>
CitiFunds Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
B. Shareholder Servicing Agents' Fees The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $577,968 for the year ended December 31,
1998.
3. Distribution Fees The Fund has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.15% of the
Fund's average daily net assets. The Distribution fees amounted to $346,780, of
which $231,320 was voluntarily waived for the year ended December 31, 1998. The
Distributor may also receive an additional fee from the Fund at an annual rate
not to exceed 0.05% of the Fund's average daily net assets in anticipation of,
or as reimbursement for, advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund. The additional fee has not been
assessed through December 31, 1998. The Distributor have voluntarily agreed to
waive this fee through December 31, 1998.
4. Investment Transactions Increases and decreases in the Fund's investment
in the Portfolio for the year ended December 31, 1998 aggregated $8,391,596 and
$18,425,054, respectively.
5. Shares Of Beneficial Interest The Declaration of Trust permits the
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest (without par value). Transactions in shares of beneficial
interest were as follows:
Year Ended December 31,
------------------------
1998 1997
================================================================================
Shares sold 1,473,554 118,898
Shares issued to shareholders from
reinvestment of distribution 2,695,888 2,424,021
Shares repurchased (1,950,608) (2,924,022)
- --------------------------------------------------------------------------------
Net increase (decrease) 2,218,834 (381,103)
================================================================================
6. Expense Fees CFBDS has entered into an expense agreement with the Fund.
CFBDS has agreed to pay all of the ordinary operating expenses (excluding
interest, taxes, brokerage commissions, litigation costs or other extraordinary
costs or expenses) of the Fund, other than fees paid under the Administrative
Services
11
<PAGE>
CitiFunds Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Continued)
Agreement, Distribution Agreement, and the Shareholder Servicing Agreements. The
Agreement may be terminated by either party upon not less than 30 days nor more
than 60 days written notice.
The Fund has agreed to pay CFBDS an expense fee on an annual basis, accrued
daily and paid monthly; provided, however, that such fee shall not exceed the
amount such that immediately after any such payment the aggregate expenses of
the Fund including expenses allocated from the Portfolio less expenses waived by
the Administrator and Distributor would, on an annual basis, exceed an agreed
upon rate, currently 1.02% of average daily net assets.
7. Subsequent Event Effective January 4, 1999, the Fund will offer two
classes of shares: Class A and Class B. Sharesof the Fund that are outstanding
on January 4, 1999 will be classified as Class A shares. Investors purchasing
shares of the Fund on or after January 4, 1999 may select Class A or Class B,
with different sales charges and expense levels. The maximum sales load imposed
on purchases of Class A shares will be 5.00% and the maximum deferred sales load
on purchases of Class B will be 5.00%.
On November 13, 1998, the Board of Trustees voted to terminate the Trust's
Administrative Services Plan and Expense Fee Agreement with respect to the Fund.
At the same time, the Trustees approved an Amended and Restated Distribution
Plan for Class AShares pursuant to Rule 12b-1 under the Investment Company Act
of 1940 which, effective January 1999, permits the Fund to compensate the
Distributor at an annual rate not to exceed 0.25% of the Fund's average daily
net assets. As a result of the termination of the Administrative Services Plan,
the Fund's Shareholder Servicing Agent agreements were terminated, effective
January 1999, and replaced with revised shareholder servicing arrangements. The
Fund's existing Administration Agreement with CFBDS remains in place.
12
<PAGE>
CitiFunds Balanced Portfolio
INDEPENDENT AUDITORS' REPORT
To the Trustees of CitiFunds Trust I (the Trust) and
the Shareholders of CitiFunds Balanced Portfolio
In our opinion, the accompanying statement of assets and liabilities, and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material aspects, the financial
position of CitiFunds Balanced Portfolio (the "Fund"), a series of CitiFunds
Trust I, at December 31, 1998, the results of its operations and the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereinafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about 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, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
13
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS December 31, 1998
Issuer Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 57.7%
- --------------------------------------------------------------------------------
Basic Industries -- 5.4%
- --------------------------------------------------------------------------------
Barrick Gold Corp. 111,000 $ 2,164,500
Dow Chemical Co. 15,300 1,391,344
Mead Corp. 75,900 2,224,819
Philip Morris Inc. 83,400 4,461,900
Premark International Inc. 25,500 882,937
Union Pacific Corp. 72,700 3,276,044
------------
14,401,544
------------
Consumer Durables -- 5.6%
- --------------------------------------------------------------------------------
American Home
Products Corp. 60,800 3,423,800
Applied Materials Inc. 36,250 1,547,422
Dana Corp. 89,000 3,637,875
Goodyear Tire and Rubber 41,300 2,083,069
Meritor Automotive Inc. 71,519 1,515,309
Sunbeam Corp. 374,100 2,618,700
------------
14,826,175
------------
Consumer Non-Durables -- 2.3%
- --------------------------------------------------------------------------------
Federated Dept. Stores Inc. * 34,000 1,481,125
New York Times Co. 44,700 1,550,531
Tommy Hilfiger Corp. 34,850 2,091,000
Toys "R" Us Inc. * 57,800 975,375
------------
6,098,031
------------
Consumer Services -- 9.4%
- --------------------------------------------------------------------------------
AT&T Corp. 114,300 8,601,075
Bell Atlantic Corp. 52,600 2,787,800
McDonalds Corp. 46,900 3,593,712
Public Service
Enterprise Group 34,600 1,384,000
SBC Communications Inc. 75,500 4,048,688
Texas Utilities Co. 30,000 1,400,625
Transocean Offshore Inc. 19,000 509,437
Walt Disney Co. 87,065 2,611,950
------------
24,937,287
------------
Electronics/Technical Services -- 4.5%
- --------------------------------------------------------------------------------
Compaq Computer Corp. 60,000 2,516,250
Hewlett Packard Co. 27,100 1,851,269
Honeywell Inc. 37,700 2,839,281
International Business
Machines 14,400 2,660,400
Sun Microsystems Inc. 24,700 2,114,937
------------
11,982,137
------------
Finance -- 15.9%
- --------------------------------------------------------------------------------
Bank One Corp. 85,000 $ 4,340,312
Bankamerica Corp. 62,400 3,751,800
Burlington Resources Inc. 83,500 2,990,344
Chase Manhattan Corp. 87,600 5,962,275
Comed Financing 55,000 1,392,187
Everest Reinsurance
Holdings 71,400 2,780,138
Franklin Resources Inc. 37,200 1,190,400
J. P. Morgan Co. Inc. 31,400 3,298,963
Mellon Bank Corp. 46,800 3,217,500
Morgan Stanley
Dean Witter 81,780 5,806,380
Safeco Corp. 108,000 4,637,250
Washington Mutual Inc. 76,400 2,917,525
------------
42,285,074
------------
Health Services/Technology -- 2.4%
- --------------------------------------------------------------------------------
Oxford Health Plans Inc. * 242,400 3,605,700
Wellpoint Health
Networks Inc. --
Class A * 30,800 2,679,600
------------
6,285,300
------------
Industrial Services -- 1.0%
- --------------------------------------------------------------------------------
USA Waste Services Inc. 54,800 2,555,050
------------
Producer Manufacturing -- 8.2%
- --------------------------------------------------------------------------------
Amerada Hess Corp. 58,300 2,900,425
American Electric Power Inc. 41,000 1,929,563
Cinergy Corp. 56,300 1,935,313
Diamond Offshore
Drilling Inc. 22,200 525,862
Entergy Corp. 70,500 2,194,312
Exxon Corp. 59,200 4,329,000
Halliburton Co. 104,000 3,081,000
Mobil Corp. 54,300 4,730,887
------------
21,626,362
------------
Miscellaneous -- 3.0%
- --------------------------------------------------------------------------------
Martin Marietta
Materials Inc. 69,100 4,297,156
Raytheon Co. 67,170 3,576,803
------------
7,873,959
------------
Total Common Stock
(Identified Cost $142,683,580) 152,870,919
------------
14
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
FIXED INCOME -- 41.9%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- 9.4%
- --------------------------------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $1,040,000 $ 1,054,352
Asset Securitization
Corp. Series 95
7.10% due 8/13/29 513,766 546,816
7.384% due 8/13/29 2,500,000 2,714,150
Asset Securitization
Corp. Series 97
6.85% due 2/14/41 600,000 642,348
Commercial Mortgage
Acceptance Corp.
5.80% due 5/15/06 541,779 539,807
Contimortgage Home
Equity Loan
6.13% due 3/15/13 1,100,000 1,102,398
GMAC Commercial
Mortgage
6.42% due 8/15/08 1,100,000 1,139,578
6.83% due 12/15/03 1,884,376 1,933,501
Green Tree
Financial Corp.
6.71% due 8/15/29 1,050,000 1,063,083
8.05% due 10/15/27 3,500,000 3,770,130
IMC Home Equity Loan
6.16 % due 5/20/14 2,000,000 2,004,500
J. P. Morgan Co. Inc.
6.373% due 1/15/30 709,332 721,895
Lehman Brothers
First Union
6.479% due 3/18/04 891,766 906,641
Merrill Lynch
Mortgage Co.
6.95% due 6/18/29 1,326,724 1,378,811
Morgan Stanley
Capital Investment Inc.
6.44% due 11/15/02 1,105,000 1,129,763
Nomura Asset
Securitization Corp.
8.15% due 3/04/20 2,000,000 2,242,120
Structured Asset
Securities Corp.
6.79% due 6/12/04 1,850,033 1,929,066
------------
24,818,959
------------
DOMESTIC CORPORATIONS -- 10.9%
- --------------------------------------------------------------------------------
Allstate Corp.
6.75% due 5/15/18 700,000 727,531
Associates Corp. N.A.
5.96% due 5/15/37 1,750,000 1,795,477
Atlantic City Electric Co.
7.01% due 8/23/02 $1,380,000 $ 1,449,124
BB & T Corp.
6.375% due 6/30/05 1,400,000 1,429,596
Century
Telecommunications
Enterprises Inc.
6.30% due 1/15/08 1,000,000 1,028,020
Conseco Inc.
6.40% due 6/15/01 850,000 818,873
Dayton Hudson Corp.
5.95% due 6/15/00 585,000 589,697
Ericcson Telephone
6.75% due 2/12/02 635,000 664,214
Equitable Life Assurance
6.95% due 12/01/05 700,000 742,078
Ford Motor Co.
6.50% due 8/01/18 1,390,000 1,424,083
GTE Corp.
6.36% due 4/15/06 1,000,000 1,046,210
Hartford Financial
Services Group, Inc.
6.375% due 11/01/08 445,000 457,215
Household Financial Corp.
6.50% due 11/15/08 700,000 728,364
Lucent Technologies Inc.
5.50% due 11/15/08 695,000 702,462
MCI Communications
Corp.
6.125% due 4/15/02 1,000,000 1,015,220
Mattel Inc.
6.00% due 7/15/03 765,000 772,428
Mellon Financial Co.
5.75% due 11/15/03 700,000 704,851
Merrill Lynch & Co. Inc.
6.00% due 11/15/04 600,000 602,118
National Rural Utilities
6.20% due 2/01/08 1,000,000 1,038,970
Nationsbank Corp.
6.375% due 5/15/05 700,000 727,615
Norfolk Southern Corp.
6.95% due 5/01/02 1,475,000 1,532,938
Occidental Petroleum
Corp.
6.40% due 4/01/03 515,000 506,848
Petroleum Geographical
Services
6.625% due 3/30/08 735,000 717,514
Philadelphia Electric
Company
7.125% due 9/01/02 370,000 387,926
6.625% due 3/01/03 715,000 740,282
15
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
Raytheon Co.
6.30% due 3/15/05 $1,000,000 $ 1,024,990
Sears Roebuck
Acceptance Corp.
5.25% due 10/16/08 1,110,000 1,087,445
Suntrust Banks Inc.
6.00% due 01/15/28 975,000 996,333
TCI Communications Inc.
6.875% due 02/15/06 940,000 1,003,046
USA Waste Services
6.50% due 12/15/02 1,000,000 1,016,110
Walt Disney Co.
5.125% due 12/15/03 870,000 865,180
6.75% due 3/30/06 455,000 492,374
------------
28,835,132
------------
MORTGAGE OBLIGATIONS -- 5.2%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations -- 0.5%
- --------------------------------------------------------------------------------
Country Wide
Mortgage Backed
Securities
7.50% due 9/25/14 395,431 394,810
PNC Mortgage
Securities Corp.
6.392% due 9/25/13 338,845 328,605
Residential Asset
Securitization Trust
7.00% due 2/25/08 607,546 608,111
------------
1,331,526
------------
Mortgage Backed Securities/
Passthroughs -- 4.7%
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.25% due 6/15/24 860,000 865,951
8.50% due 6/01/01 9,586 9,723
9.50% due 2/01/01 5,084 5,158
Federal National
Mortgage Association
6.00% due 12/01/99 TBA 790,000 778,397
6.50% due 12/01/99 TBA 2,050,000 2,063,448
7.349% due 8/17/21 600,000 655,332
7.50% due 12/01/99 TBA 3,000,000 3,081,540
7.50% due 10/01/25 147,787 151,850
7.50% due 11/01/25 2,292,144 2,355,155
9.00% due 11/01/01 7,148 7,290
Government National
Mortgage Association
7.25% due 10/16/22 2,577,566 2,587,232
------------
12,561,076
------------
Total Mortgage Obligations 13,892,602
------------
YANKEE BONDS -- 2.0%
- --------------------------------------------------------------------------------
British Columbia
Province, Canada
5.375 % due 10/29/08 $ 750,000 $ 748,545
Interamerica
Development Bank
6.95% due 8/01/26 2,000,000 2,242,180
Manitoba Province,
Canada
5.50 % due 10/01/08 750,000 758,400
Ontario Province, Canada
5.500 % due 10/01/08 750,000 752,887
Republic of Ireland
6.875% due 3/10/03 665,000 703,237
------------
5,205,249
------------
UNITED STATES GOVERNMENT &
AGENCY OBLIGATIONS -- 14.4%
- --------------------------------------------------------------------------------
United States Treasury Bonds -- 2.6%
- --------------------------------------------------------------------------------
6.625% due 2/15/27 5,000,000 5,914,050
3.625% due 4/15/28 983,473 953,969
------------
6,868,019
------------
United States Treasury Notes -- 7.8%
- --------------------------------------------------------------------------------
5.875% due 11/15/99 170,000 171,753
6.00% due 6/30/99 3,425,000 3,448,530
5.50% due 12/31/00 3,680,000 3,741,530
6.625% due 6/30/01 5,300,000 5,544,277
6.625% due 4/30/02 2,500,000 2,645,700
5.875% due 2/15/04 5,000,000 5,275,000
------------
20,826,790
------------
United States Agency Obligations -- 4.0%
- --------------------------------------------------------------------------------
Federal National
Mortgage Association
5.49% due 8/18/00 5,000,000 5,039,050
Federal National
Mortgage Association
6.00% due 5/15/08 3,500,000 3,694,670
Tennessee Valley
Authority
5.88% due 4/01/36 1,750,000 1,856,995
------------
10,590,715
------------
Total United States
Government &
Agency Obligations 38,285,524
------------
Total Fixed Income
(Identified Cost
$108,358,844) 111,037,466
------------
16
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 2.0%
- --------------------------------------------------------------------------------
FCC National Bank
5.68% due 6/03/99 $ 2,005,000
Federal Home Loan
Mortgage Discount
Notes
4.50% due 01/04/99 3,280,769
United States
Treasury Bills
4.36% due 06/24/99 93,033
------------
Total Short-Term Obligations
(Identified Cost
$5,373,205) 5,378,802
------------
Value
- --------------------------------------------------------------------------------
Total Investments
(Identified Cost
$256,415,629) 101.6% $269,287,187
Other Assets,
Less Liabilities (1.6) (4,163,323)
----- ------------
Net Assets 100.0% $265,123,864
===== ============
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Futures contracts which were open at December 31, 1998 are as follows:
Aggregate
Number of Face Value Expiration Unrealized
Contracts Of Contracts Date Gain/loss
- --------------------------------------------------------------------------------
U. S. Long
Bond March
(Sell) 40 $4,000,000 1999 $69,075
*Non-income producing
See notes to financial statements
17
<PAGE>
Balanced Portfolio
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
================================================================================
Assets:
Investments at value (Note 1A) (Identified Cost, $256,415,629) $269,287,187
Cash 1,583
Receivable for investments sold 342,068
Dividends and interest receivable 1,523,456
Receivable for daily variation on future contracts 5,000
- --------------------------------------------------------------------------------
Total assets 271,159,294
- --------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 5,913,147
Payable to affiliates-Investment advisory fees (Note 2) 88,911
Accrued expenses and other liabilities 33,372
- --------------------------------------------------------------------------------
Total liabilities 6,035,430
- --------------------------------------------------------------------------------
Net Assets $265,123,864
================================================================================
Represented by:
Paid-in capital for beneficial interests $265,123,864
================================================================================
Balanced Portfolio
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
================================================================================
Investment Income:
Interest $6,600,988
Dividends 2,760,044
- --------------------------------------------------------------------------------
$9,361,032
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 1,030,889
Administrative fees (Note 3) 128,861
Expense fees (Note 6) 257,639
- --------------------------------------------------------------------------------
Total expenses 1,417,389
- --------------------------------------------------------------------------------
Net investment income 7,943,643
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions 29,623,534
Net realized gains from futures contracts 102,937
Unrealized depreciation of investments and
futures contracts (17,148,033)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and futures contracts 12,578,438
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $20,522,081
================================================================================
See notes to financial statements
18
<PAGE>
Balanced Portfolio
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
-----------------------
1998 1997
================================================================================
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 7,943,643 $ 7,239,807
Net realized gain from investment transactions
and futures contracts 29,726,471 34,083,761
Unrealized appreciation (depreciation)
of investments and futures contracts (17,148,033) 6,996,049
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 20,522,081 48,319,617
- --------------------------------------------------------------------------------
Capital Transactions:
Proceeds from contributions 17,030,280 7,417,240
Value of withdrawals (23,622,833) (52,068,589)
- --------------------------------------------------------------------------------
Net decrease in net assets from capital transactions (6,592,553) (44,651,349)
- --------------------------------------------------------------------------------
Net Increase in Net Assets 13,929,528 3,668,268
- --------------------------------------------------------------------------------
Net Assets:
Beginning of period 251,194,336 247,526,068
- --------------------------------------------------------------------------------
End of period $265,123,864 $251,194,336
================================================================================
Balanced Portfolio
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
May 1, 1994
(Commencement
Year Ended December 31, of Operations) to
------------------------------------------ December 31,
1998 1997 1996 1995 1994
===========================================================================================
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net Assets, end of period
(000's omitted) $265,124 $251,194 $247,526 $251,519 $228,948
Ratio of expenses to
average net assets 0.55% 0.55% 0.55% 0.53% 0.51%*
Ratio of net investment
income to average
net assets 3.08% 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover 133% 134% 241% 210% 105%
===========================================================================================
</TABLE>
* Annualized
See notes to financial statements
19
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies Balanced Portfolio (the "Portfolio"), a
separate series of The Premium Portfolios (the "Portfolio Trust"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Adviser of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Administrator. Citibank is a wholly-owned
subsidiary of Citigroup, Inc.
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 approximates market value.
Securities, if any, for which there are no such valuations or quotations are
valued at fair value as determined in good faith by or under guidelines
established by the Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for federal income tax purposes. Gain and loss from principal
paydowns are recorded as interest income. Dividend income is recorded on the
ex-dividend date.
C. 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.
D. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
20
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Continued)
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 agreement
investments. 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. TBA Purchase Commitments The Portfolio enters into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
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. The underlying value of a futures contract is incorporated
within unrealized appreciation/depreciation in the Portfolio of Investments
under the caption "Futures Contracts". 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.
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.
Futures contracts are valued at the
21
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
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. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. Investment Advisory Fees The investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $1,030,889
for the year ended December 31, 1998. The investment advisory fees are computed
at the annual rate of 0.40% of the Portfolio's average daily net assets.
3. Administrative Fees Under the terms of an Administrative Services Agreement,
the administrative fees paid to the Administrator, as compensation for overall
administrative services and general office facilities, is computed at an annual
rate of 0.05% of the Portfolio's average daily net assets. The Administrative
fees amounted to $128,861 for the year ended December 31, 1998. Citibank acts as
Sub-Administrator and performs certain duties and receives compensation from SFG
from time to time as agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
4. Purchases And Sales Of Investments Purchases and sales of investments, other
than short-term obligations, aggregated $404,555,392 and $395,631,379,
respectively, for the year ended December 31, 1998. Purchases and sales of U.S.
Government securities aggregated to $94,130,487 and $89,398,388, respectively.
5. Federal Income Tax Basis Of Investments The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at December 31, 1998,
as computed on a federal income tax basis, are as follows:
Aggregate cost $256,507,514
================================================================================
Gross unrealized appreciation $ 21,418,237
Gross unrealized depreciation (8,638,564)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 12,779,673
================================================================================
22
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Expense Fees SFG has entered into an expense agreement with the Portfolio.
SFG has agreed to pay all of the ordinary operating expenses (excluding
interest, taxes, brokerage commissions litigation costs or other extraordinary
costs or expenses) of the Portfolio, other than fees paid under the Advisory
Agreement and Administrative Services Agreement. The Agreement may be terminated
by either party upon not less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis,
accrued daily and paid monthly; provided, however, that such fee shall not
exceed the amount such that immediately after any such payment the aggregate
ordinary expenses of the Portfolio less expenses waived by the Administrator
would, on an annual basis, exceed an agreed upon rate, currently 0.55% of
average daily net assets.
7. Line of Credit The Portfolio, along with the other Portfolios in the
CitiFunds Family, has entered into an ongoing agreement with a bank which allows
the Funds collectively to borrow up to $60 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific fund
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the year ended December 31, 1998, the
commitment fee allocated to the Portfolio was $858. Since the line of credit was
established, there have been no borrowings.
8. Subsequent Event Effective January 1, 1999 the expense fee agreement has been
terminated between the Portfolio and SFG.
23
<PAGE>
Balanced Portfolio
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of The Premium Portfolios (the Trust), with
respect to its series, Balanced Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Balanced Portfolio (the "Portfolio"),
a series of The Premium Portfolios, as at December 31, 1998, 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 (hereinafter 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 about 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 incudes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at December 31, 1998 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 December 31, 1998, 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
February 12, 1999
24
<PAGE>
Trustees and Officers
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
Secretary
Linda T. Gibson*
Treasurer
John R. Elder*
*Affiliated Person of Administrator and Distributor
Investment Adviser
(of Balanced Portfolio)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
Administrator and Distributor
CFBDS, Inc.
21 Milk Street, 5th Floor, Boston, MA 02109
(617) 423-1679
Transfer Agent and Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Auditors
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
Legal Counsel
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
Large Cap Stocks
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
Small Cap Stocks
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
International Stocks
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
Growth with Income
o CitiFunds Balanced Portfolio
Bonds
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
Money Markets
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more information contact your Service Agent, or call 1-800-625-4554.
CitiFunds are made available by CFBDS, Inc. as distributor.
