<PAGE>
Semi-Annual Report o April 30, 1998
[LOGO]
Large Cap Growth Portfolio
LARGE CAP STOCKS
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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 LARGE CAP GROWTH PORTFOLIO
Statement of Assets and Liabilities 6
...............................................................................
Statement of Operations 7
...............................................................................
Statement of Changes in Net Assets 8
...............................................................................
Financial Highlights 9
...............................................................................
Notes to Financial Statements 10
...............................................................................
LARGE CAP GROWTH PORTFOLIO
Portfolio of Investments 13
...............................................................................
Statement of Assets and Liabilities 15
...............................................................................
Statement of Operations 15
...............................................................................
Statement of Changes in Net Assets 16
...............................................................................
Financial Highlights 16
...............................................................................
Notes to Financial Statements 17
...............................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from November 1, 1997, through April
30, 1998, for the CitiFundsSM Large Cap Growth 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.
Overall, the past six months were quite positive for large-capitalization
U.S. growth stocks. Despite setbacks in the aftermath of the Asian financial
crisis during the fourth quarter of 1997, large-cap growth stocks rebounded
strongly in the first four months of 1998. We are pleased to report that
CitiFunds Large Cap Growth Portfolio participated in this market sector's gains.
Among the highlights of the reporting period, your Fund has changed its name
to the CitiFunds Large Cap Growth Portfolio. We believe that the new name
provides a more accurate description of the Portfolio's holdings. The
Portfolio's investment objective and strategy have not changed.
As you have probably heard, Citicorp recently announced its intention to
merge with The Travelers Group. The completion of the merger is subject to the
satisfaction of certain conditions. As necessary, we will provide you with
information that specifically affects the Fund.
On behalf of the Board of Trustees, we want to thank you for your continued
participation and confidence in the CitiFunds family of funds.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
May 16, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
The Asian crisis created turmoil in the U.S. stock market when the six-month
reporting period began on November 1, 1997. Stock prices fell sharply during the
fourth quarter of 1997 when investors became concerned that Asia's financial
problems would slow U.S. economic growth. Reduced demand for goods imported from
the U.S., together with the beneficial effects of currency devaluations on Asian
exports, were expected to erode sales and profits for many large U.S.
companies, especially those with significant exposure to Asian markets.
However, such a slow-down did not materialize in the first quarter of 1998,
and investors appeared to disregard their earlier concerns about the Asian
crisis. U.S. stocks resumed their longstanding rally between January and April,
driven higher by undiminished demand for financial assets from individuals,
institutions and retirement plans. Low interest rates, low inflation and growing
corporate profits attracted investments from bonds and money market funds to
stocks and equity mutual funds.
More specifically, large-capitalization growth stocks continued to lead the
U.S. market's advance over the past six months, as they have for the past
several years. Investors have preferred large growth companies because of the
ready liquidity of their shares, as well as these companies' demonstrated
ability to grow earnings consistently.
The Large Cap Growth Portfolio continued to focus on high-quality companies
with proven records of consistent earnings growth, strong market positions and
talented management teams. Because we became concerned about Asian market
events, we had reduced the Portfolio's exposure to the U.S. companies that were
most directly affected by the Asian crisis. We focused new investments on large
U.S. growth companies that derive their revenues primarily from domestic
markets. Of course, some of the Portfolio's holdings were indirectly affected by
the Asian crisis, especially during November and December, 1997.
The Portfolio particularly benefitted over the past six months from its
holdings in certain sectors of the stock market. For example, some specialty
retailers saw sales and profits rise significantly because consumers became more
confident and spent more freely in a sound economy. Many large consumer service
companies, such as entertainment conglomerates and leisure providers, also
benefitted from consumers' willingness to spend. Financial companies such as
banks and brokerage firms profited from lower interest rates and heightened
investment activity, both products of the healthy economy.
On the other hand, we tended to avoid stocks in the volatile portions of the
technology industry as well as the energy sector, both of which lagged behind
the market averages over the past six months.
Later in the six-month period, we took profits in some of our most successful
stocks. Trimming these positions back to more manageable levels, we redeployed
the proceeds primarily in new investments representing a broad array of
industries and market sectors. We believe we can manage the risks of the U.S.
stock market more effectively by avoiding an over-concentration of assets in any
single security and maintaining a broadly diversified portfolio.
Looking forward, we expect the U.S. economy to remain sound. Moderate
economic growth and low inflation should persist as long as the underlying
fundamentals remain in place. We expect long-term interest rates to decline
modestly in this environment, further reducing many companies' borrowing costs.
However, we are cautious with regard to the sustainability of the stock
market's rally. Because corporate earnings are growing more slowly, we do not
expect the U.S. stock market to repeat its stellar performance of the last few
years. Rather, we expect the domestic market to consolidate its gains. In fact,
we would not be surprised to see temporary corrections over the next several
months in those stocks and market sectors that have advanced most.
We are more optimistic over the longer term. The influences that may slow the
growth of corporate profits in 1998 are probably temporary, and we expect
earnings growth to re-accelerate early next year. In our view, investors with a
long-term perspective will continue to enjoy the rewards provided by
large-capitalization growth stocks if they resist the temptation to "time" the
markets in order to avoid temporary setbacks.
FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid semi-annually, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
October 19, 1990 Distributed annually, if any
NET ASSETS AS OF 4/30/98 BENCHMARKS
$306.9 million o Standard & Poor's Barra Growth Index
o Lipper Growth Funds Average
<PAGE>
PORTFOLIO HIGHLIGHTS
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TOP TEN EQUITY HOLDINGS AS OF APRIL 30, 1998 (UNAUDITED)
COMPANY, INDUSTRY % OF PORTFOLIO
General Electric Co., Capital Goods 6.04%
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Microsoft Corp., Technology 4.53%
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Coca Cola Co., Consumer Non-Durables 4.12%
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Pfizer Inc., Healthcare 3.64%
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Merck & Co., Healthcare 3.16%
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Wal Mart Stores Inc., Retail Trade 2.64%
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Warner Lambert Co., Healthcare 2.23%
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Federal National Mortgage Association, Finance 2.15%
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Cardinal Health Inc., Healthcare 2.12%
...............................................................................
Illinois Tool Works, Capital Goods 2.02%
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PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1998 (Unaudited)
Healthcare 22%
Technology 20%
Consumer 18%
Finance 11%
Retail 11%
Capital Goods 8%
Commercial Services 3%
*Short Term 3%
Energy Utilities 2%
Transportation 2%
*Includes cash and net other assets
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ALL PERIODS ENDED APRIL 30, 1998 SIX ONE FIVE 10/19/90
(Unaudited) MONTHS** YEAR YEARS* INCEPTION*
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CitiFunds Large Cap Growth Portfolio 23.65% 39.77% 18.93% 18.69%
Lipper Growth Funds Average 17.31% 39.11% 19.64% 19.68%+
S&P Barra Growth Index 24.97% 42.85% 24.78% 22.46%+
* Average Annual Total Return
** Not Annualized
+ From 10/31/90
Income Dividends Per Share $0.012
Capital Gain Distributions $4.371
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$36,370 (as of 4/30/98). The graph shows how the Fund compares to its benchmarks
over the same period.
CitiFunds S&P Barra
Large Cap Lipper Growth Growth Index
Growth Portfolio Funds Average (unmanaged)
10/31/90 $ 9,846.83 $10,000.00 $10,000.00
11/30/90 10,437.64 10,660.00 10,604.00
12/31/90 10,534.12 11,014.00 10,941.21
1/31/91 10,996.43 11,690.00 11,396.36
2/28/91 11,810.98 12,534.00 12,279.58
3/31/91 11,888.03 12,938.00 12,743.75
4/30/91 11,634.86 12,922.00 12,719.54
5/31/91 12,427.40 13,456.00 13,200.34
6/30/91 11,723.49 12,795.00 12,648.57
7/31/91 12,411.80 13,430.00 13,325.27
8/31/91 13,111.21 13,838.00 13,754.34
9/30/91 12,667.14 13,712.00 13,453.12
10/31/91 12,955.78 13,993.00 13,617.25
11/30/91 12,400.69 13,435.00 13,270.01
12/31/91 13,771.77 14,921.00 15,139.75
1/31/92 13,548.92 14,997.00 14,608.34
2/29/92 13,883.19 15,208.00 14,694.53
3/31/92 13,515.50 14,755.00 14,353.62
4/30/92 13,571.21 14,656.00 14,505.77
5/31/92 13,537.78 14,738.00 14,618.92
6/30/92 13,106.19 14,309.00 14,316.31
7/31/92 13,665.33 14,821.00 14,961.98
8/31/92 13,285.12 14,499.00 14,789.92
9/30/92 13,575.87 14,724.00 14,964.44
10/31/92 13,922.54 15,021.00 15,188.91
11/30/92 14,694.15 15,769.00 15,802.54
12/31/92 14,818.29 16,061.00 15,906.84
1/31/93 14,896.70 16,259.00 15,735.05
2/28/93 14,683.89 16,004.00 15,607.60
3/31/93 15,535.13 16,447.00 15,827.67
4/30/93 15,288.71 15,937.00 15,098.01
5/31/93 15,725.53 16,516.00 15,635.50
6/30/93 15,572.27 16,566.00 15,502.60
7/31/93 15,370.47 16,526.00 15,183.25
8/31/93 16,065.56 17,225.00 15,737.44
9/30/93 16,110.40 17,401.00 15,496.66
10/31/93 16,334.62 17,643.00 16,073.14
11/30/93 16,132.82 17,297.00 16,061.89
12/31/93 16,635.43 17,797.00 16,174.32
1/31/94 16,972.64 18,322.00 16,520.45
2/28/94 16,702.87 18,036.00 16,224.73
3/31/94 15,961.02 17,187.00 15,475.15
4/30/94 16,253.27 17,244.00 15,544.79
5/31/94 16,579.23 17,310.00 15,798.17
6/30/94 16,103.44 16,727.00 15,461.67
7/31/94 16,607.39 17,169.00 15,954.90
8/31/94 17,019.71 17,955.00 16,806.89
9/30/94 16,584.48 17,632.00 16,566.55
10/31/94 16,893.73 17,911.00 16,952.55
11/30/94 16,332.51 17,239.00 16,396.51
12/31/94 16,568.01 17,398.00 16,680.17
1/31/95 16,673.54 17,520.00 17,093.84
2/28/95 17,259.81 18,173.00 17,760.50
3/31/95 17,681.92 18,678.00 18,318.18
4/30/95 17,869.53 19,061.00 18,794.45
5/31/95 18,444.07 19,616.00 19,467.29
6/30/95 18,736.15 20,420.00 20,212.89
7/31/95 19,327.94 21,372.00 20,857.68
8/31/95 19,138.56 21,537.00 20,788.85
9/30/95 19,718.52 22,157.00 21,815.82
10/31/95 19,777.70 21,825.00 21,990.35
11/30/95 20,842.93 22,585.00 22,782.00
12/31/95 21,132.21 22,664.00 23,039.44
1/31/96 21,685.09 23,149.00 23,919.55
2/29/96 21,820.24 23,672.00 24,137.22
3/31/96 22,213.39 23,883.00 24,035.84
4/30/96 22,385.40 24,669.00 24,504.54
5/31/96 22,790.84 25,323.00 25,406.31
6/30/96 23,042.20 24,958.00 25,723.89
7/31/96 21,726.92 23,475.00 24,538.02
8/31/96 22,310.11 24,304.00 24,901.18
9/30/96 23,550.94 25,682.00 26,629.32
10/31/96 23,563.35 25,857.00 27,207.18
11/30/96 24,878.63 27,398.00 29,239.56
12/31/96 24,057.36 27,001.00 28,564.13
1/31/97 25,481.03 28,381.00 30,800.70
2/28/97 25,309.66 27,969.00 31,059.43
3/31/97 23,978.27 26,646.00 29,584.73
4/30/97 26,021.49 27,637.00 31,972.22
5/31/97 27,313.34 29,682.00 33,868.17
6/30/97 28,649.57 30,851.00 35,585.29
7/31/97 30,653.23 33,446.00 38,403.64
8/31/97 28,593.91 32,336.00 35,849.80
9/30/97 29,929.69 34,134.00 37,678.14
10/31/97 29,414.86 32,840.00 36,544.03
11/30/97 31,112.41 33,392.00 38,528.37
12/31/97 31,606.60 33,709.00 39,002.27
1/31/98 32,388.94 33,867.00 40,312.75
2/28/98 34,666.43 36,421.00 43,113.68
3/31/98 36,335.42 38,024.00 45,342.66
4/30/98 36,370.19 38,476.00 45,723.54
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Notes: 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, and reflect voluntary fee waivers which may
be terminated at any time. If the waivers were not in place, the Fund's returns
would have been lower.
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
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ASSETS:
Investment in Large Cap Growth Portfolio, at value (Note 1A) $305,860,842
Receivable for shares of beneficial interest sold 1,403,551
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Total assets 307,264,393
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LIABILITIES:
Payable for shares of beneficial interest repurchased 274,799
Payable to affiliates--Management fee (Note 2) 12,967
Accrued expenses and other liabilities 78,941
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Total liabilities 366,707
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NET ASSETS for 14,672,636 shares of beneficial interest
outstanding $306,897,686
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NET ASSETS CONSIST OF:
Paid-in capital $204,239,806
Unrealized appreciation 80,715,756
Accumulated net realized gain 22,066,581
Undistributed net investment loss (124,457)
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Total $306,897,686
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NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $20.92
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See notes to financial statements
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (Unaudited)
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INVESTMENT INCOME (Note 1B):
Dividend Income from Large Cap Growth Portfolio $ 1,096,054
Interest Income from Large Cap Growth Portfolio 205,020
Allocated Expenses from Large Cap Growth Portfolio (962,661)
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$ 338,413
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EXPENSES:
Management fees (Note 2) 406,455
Distribution fees (Note 3) 338,713
Shareholder Reports 17,994
Audit fees 12,225
Custody and Fund Accounting fees 8,719
Trustees fees 8,401
Registration fees 6,586
Legal fees 6,184
Transfer agent fees 2,000
Miscellaneous 1,858
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Total expenses 809,135
Less aggregate amount waived by the Manager (Note 2) (349,238)
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Net expenses 459,897
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Net investment loss (121,484)
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NET REALIZED AND UNREALIZED GAIN FROM
LARGE CAP GROWTH PORTFOLIO:
Net realized gain 22,169,332
Net change in unrealized appreciation 35,376,818
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Net realized and unrealized gain from
Large Cap Growth Portfolio 57,546,150
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $57,424,666
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See notes to financial statements
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS TEN MONTHS
ENDED ENDED YEAR
APRIL 30, OCTOBER 31, ENDED
1998 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
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INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) $ (121,484) $ 357,829 $ 1,497,758
Net realized gain 22,169,332 46,948,909 26,516,316
Net change in unrealized appreciation 35,376,818 934,665 1,062,588
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Net increase in net assets resulting
from operations 57,424,666 48,241,403 29,076,662
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (138,253) (347,415) (1,433,073)
Net realized gain (50,358,634) (13,051,223) (14,330,626)
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Decrease in net assets from
distributions to shareholders (50,496,887) (13,398,638) (15,763,699)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(Note 5):
Net proceeds from sale of shares 20,891,046 6,434,759 13,950,013
Net asset value of shares issued to
shareholders from reinvestment of
distributions 50,485,303 13,398,487 15,763,320
Cost of shares repurchased (19,567,150) (35,469,550) (27,800,567)
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Net increase (decrease) in net assets
from transactions in shares of
beneficial interest 51,809,199 (15,636,304) 1,912,766
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NET INCREASE IN NET ASSETS 58,736,978 19,206,461 15,225,729
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NET ASSETS:
Beginning of period 248,160,708 228,954,247 213,728,518
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End of period (including
undistributed net investment
income (loss) of $(124,457),
$135,280, and $124,866
respectively) $306,897,686 $248,160,708 $228,954,247
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See notes to financial statements
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS
ENDED ENDED
APRIL 30, OCTOBER 31, YEAR ENDED DECEMBER 31,
1998 1997 ------------------------------------------------------------
(Unaudited) (Note 1F) 1996 1995 1994++ 1993++ 1992++
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<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 21.14 $ 18.25 $ 17.20 $ 14.13 $ 14.80 $ 13.23 $ 12.36
- ---------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment
income (loss) (0.008) 0.031 0.122 0.211 0.173 0.071** 0.065
Net realized and
unrealized gain (loss)
on investments 4.171 4.016 2.250 3.651 (0.245) 1.550** 0.868
- ---------------------------------------------------------------------------------------------------------------------
Total from operations 4.163 4.047 2.372 3.862 (0.072) 1.621 0.933
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.012) (0.030) (0.118) (0.210) (0.169) (0.051) (0.063)
Net realized gain on
investments (4.371) (1.127) (1.204) (0.582) (0.429) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (4.383) (1.157) (1.322) (0.792) (0.598) (0.051) (0.063)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, end
of period $ 20.92 $ 21.14 $ 18.25 $ 17.20 $ 14.13 $ 14.80 $ 13.23
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $306,898 $248,161 $228,954 $213,729 $183,975 $200,903 $10,973
Ratio of expenses to
average net assets 1.05%(A)* 1.05%(A)* 1.05%(A) 1.05%(A) 1.05%(A) 1.07% 1.40%
Ratio of net investment
income (loss) to
average net assets (0.09%)* 0.18%* 0.67% 1.30% 1.15% 0.52% 0.53%
Portfolio turnover(B) -- -- -- -- 1% 23% 79%
Total return 23.65% 22.27% 13.84% 27.55% (0.41)% 12.26% 7.60%
Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees and had
expenses been limited to that required by certain state securities laws for the year ended December 31, 1992, the net
investment income (loss) per share and the ratios would have been as follows:
Net investment income
(loss) per share $(0.031) $(0.023) $0.067 $0.170 $0.136 $(0.029)** $(0.070)
RATIOS:
Expenses to average
net assets 1.31%(A)* 1.35%(A)* 1.35%(A) 1.30%(A) 1.29%(A) 1.37% 2.50%
Net investment income
(loss) to average
net assets (0.35)%* (0.12)%* 0.37% 1.05% 0.91% 0.21% (0.57%)
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* Annualized.
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A) Includes the Fund's share of Large Cap Growth Portfolio (formerly Equity Portfolio) allocated expenses for the
periods subsequent to May 1, 1994.
(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.
+ Not Annualized.
++ On May 1, 1994 the fund began investing all of its investable assets in Large Cap Growth Portfolio.
See notes to financial statements
</TABLE>
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Large Cap Growth Portfolio,
(formerly Landmark Equity until March 2, 1998), (the "Fund") is a separate
diversified series of CitiFunds Trust II (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 Large Cap Growth Portfolio (the "Portfolio"), (formerly
Equity Portfolio), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Manager. CFBDS, Inc ("CFBDS"), (formerly The
Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's
Sub-Administrator and Distributor.
The Trust seeks to achieve the Fund's investment objective of long-term
capital growth by investing all of its investable assets in the Portfolio, an
open-end, diversified management investment company having the same investment
objective and policies and substantially the same investment restrictions as the
Fund. The value of such investment reflects the Fund's proportionate interest
(56.5% at April 30, 1998) in the net assets of the Portfolio.
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 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 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 differ 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. For the ten months ended
October 31, 1997, the Fund reclassified $3,325,755 from paid-in capital to
accumulated net realized gain on investments.
F. Change in Fiscal Year End During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. 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. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp. Citicorp recently announced its intentions to merge with The Travelers
Group. Completion of the merger is subject to the satisfaction of certain
conditions.
The management fees paid to Citibank, are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.30% of the Funds' average
daily net assets. The management fee amounted to $406,455 of which $349,238 was
voluntarily waived for the six months ended April 30, 1998. 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. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, in which the Fund pays
fees for distribution, sales and marketing and shareholder services at an annual
rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $338,713 for the six months ended April 30, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the six months ended April 30, 1998 aggregated $19,768,339 and
$20,137,667, 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:
SIX MONTHS TEN MONTHS
ENDED ENDED
APRIL 30, OCTOBER 31, YEAR ENDED
1998 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
- --------------------------------------------------------------------------------
Shares sold 1,015,402 318,860 770,660
Shares issued to shareholders from
reinvestment of distributions 2,873,381 643,230 862,316
Shares repurchased (957,494) (1,766,046) (1,514,522)
- --------------------------------------------------------------------------------
Net increase (decrease) 2,931,289 (803,956) 118,454
- --------------------------------------------------------------------------------
<PAGE>
LARGE CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS April 30, 1998
(Unaudited)
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.0%
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 8.1%
- --------------------------------------------------------------------------------
General Electric Co. 384,000 $32,688,000
Illinois Tool Works 155,000 10,927,500
-----------
43,615,500
-----------
COMMERCIAL SERVICES -- 2.5%
- --------------------------------------------------------------------------------
Interpublic Group Companies Inc. 95,000 6,068,125
Paychex Inc. 137,000 7,440,813
-----------
13,508,938
-----------
CONSUMER DURABLES -- 1.3%
- --------------------------------------------------------------------------------
Leggett & Platt Inc. 139,000 7,219,312
-----------
CONSUMER NON-DURABLES -- 8.9%
- --------------------------------------------------------------------------------
Clorox Co. 100,275 8,410,566
Coca Cola Co. 294,000 22,307,250
Gillette Co. 65,000 7,503,437
Procter & Gamble Co. 123,000 10,109,062
-----------
48,330,315
-----------
CONSUMER SERVICES -- 7.8%
- --------------------------------------------------------------------------------
Carnival Corp. 121,000 8,417,063
Clear Channel Communications* 92,000 8,671,000
Cracker Barrel Old Country Store 251,000 9,224,250
Gannett Inc. 144,630 9,825,801
Walt Disney Co. 48,700 6,054,019
-----------
42,192,133
-----------
ENERGY -- 1.0%
- --------------------------------------------------------------------------------
Schlumberger Ltd. 67,200 5,533,206
-----------
FINANCE -- 11.1%
- --------------------------------------------------------------------------------
American International Group Inc. 46,000 6,051,875
Federal Home Loan Mortgage Corp. 106,000 4,909,125
Federal National Mortgage Association 194,430 11,641,496
MBNA Corp. 152,000 5,149,000
MGIC Investment Corp. 102,200 6,438,600
Norwest Corp. 176,100 6,988,969
State Street Corp. 79,000 5,648,500
US Bancorp 45,930 5,833,110
Zions Bancorp 148,000 7,566,500
-----------
60,227,175
-----------
HEALTHCARE -- 22.2%
- --------------------------------------------------------------------------------
Abbott Labs 89,000 6,508,125
Cardinal Health Inc. 119,000 11,453,750
Eli Lilly & Co. 121,000 8,417,062
HBO & Co. 149,000 8,912,063
Johnson & Johnson 115,000 8,208,125
Lincare Holdings Inc.* 120,700 9,791,787
Medtronic Inc. 184,000 9,683,000
Merck & Co. 142,000 17,111,000
Pfizer Inc. 173,000 19,689,562
Schering Plough Corp. 99,000 7,932,375
Warner Lambert Co. 64,000 12,108,000
-----------
119,814,849
-----------
RETAIL -- 11.4%
- --------------------------------------------------------------------------------
Bed Bath & Beyond Inc.* 127,489 6,278,833
Consolidated Stores* 174,100 6,964,000
Gap Inc. 121,000 6,223,938
Home Depot 154,000 10,722,250
Kohls Corp.* 208,070 8,595,892
Wal Mart Stores Inc. 282,000 14,258,625
Walgreen Co. 247,000 8,521,500
-----------
61,565,038
-----------
TECHNOLOGY -- 20.2%
- --------------------------------------------------------------------------------
Automatic Data Processing Inc. 162,400 10,870,650
BMC Software Inc.* 64,000 5,988,000
Cisco Systems Inc.* 148,767 10,897,183
Compuware Corp.* 108,000 5,278,500
EMC Corp.* 203,000 9,363,375
Hewlett Packard Co. 103,800 7,817,438
Intel Corp. 78,000 6,303,375
Linear Technology Corp. 69,000 5,554,500
Microsoft Corp.* 272,000 24,514,000
Parametic Technology Corp.* 268,000 8,567,625
Solectron Corp.* 116,900 5,180,130
SunGard Data Systems* 246,100 8,767,313
-----------
109,102,089
-----------
TRANSPORTATION -- 1.5%
- --------------------------------------------------------------------------------
Southwest Airlines Co. 290,000 7,956,875
-----------
UTILITIES -- 1.0%
- --------------------------------------------------------------------------------
Ameritech Corp. 128,000 5,448,000
-----------
TOTAL COMMON STOCKS 524,513,430
-----------
<PAGE>
ISSUER VALUE
- --------------------------------------------------------------------------------
SHORT-TERM
OBLIGATIONS -- 3.2%
- --------------------------------------------------------------------------------
Sanwa Repurchase Agreement
5.42% due 5/01/98
proceeds at maturity
$17,476,000 (Collateralized
by $11,000,000 U.S.
Treasury Strip, zero coupon
due 2/15/00 and
$7,691,000
U.S. Treasury Note,
5.50% due 11/15/98) $ 17,476,000
------------
TOTAL INVESTMENTS
(Identified Cost $416,940,098) 100.2% 541,989,430
OTHER ASSETS, LESS LIABILITIES (0.2) (1,106,337)
----- ------------
NET ASSETS 100.0% $540,883,093
===== ============
* Non income producing securities
See notes to financial statements
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $416,940,098) $541,989,430
Cash 60
Receivable for investments sold 5,450,130
Dividends and interest receivable 262,599
- --------------------------------------------------------------------------------
Total assets 547,702,219
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,375,206
Payable to affiliates--Management fees (Note 2) 266,013
Accrued expenses and other liabilities 177,907
- --------------------------------------------------------------------------------
Total liabilities 6,819,126
- --------------------------------------------------------------------------------
NET ASSETS $540,883,093
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $540,883,093
- --------------------------------------------------------------------------------
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 1,934,321
Interest income 362,537
- --------------------------------------------------------------------------------
Total investment income $ 2,296,858
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,438,479
Custody and Fund Accounting fees 229,472
Audit fees 13,750
Legal fees 9,184
Trustees fees 2,810
Miscellaneous 8,308
- --------------------------------------------------------------------------------
Total expenses 1,702,003
- --------------------------------------------------------------------------------
Net investment income 594,855
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net change in unrealized appreciation
of investments 72,553,099
Less unrealized appreciation from
contributed assets 10,248,832
- --------------------------------------------------------------------------------
Unrealized appreciation of investment 62,304,267
Net realized gain from investment transactions 39,166,058
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 101,470,325
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $102,065,180
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 594,855 $ 1,639,995 $ 3,049,790
Net realized gain on
investment transactions 39,166,058 60,297,277 28,518,761
Unrealized appreciation of
investments 62,304,267 1,141,934 4,832,223
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 102,065,180 63,079,206 36,400,774
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 215,193,953 38,002,991 61,756,061
Value of withdrawals (101,288,776) (64,731,733) (55,752,909)
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets from capital
transactions 113,905,177 (26,728,742) 6,003,152
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 215,970,357 36,350,464 42,403,926
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 324,912,736 288,562,272 246,158,346
- --------------------------------------------------------------------------------
End of period $540,883,093 $324,912,736 $288,562,272
- --------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS MAY 1, 1994
ENDED ENDED YEAR ENDED (COMMENCEMENT
APRIL 30, OCTOBER 31, DECEMBER 31, OF OPERATIONS) TO
1998 1997 ----------------- DECEMBER 31,
(Unaudited) (Note 1F) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $540,883 $324,913 $288,562 $246,158 $186,685
Ratio of expenses to
average net assets 0.71%* 0.60%* 0.60% 0.60% 0.60%*
Ratio of net investment income
to average net assets 0.25%* 0.62%* 1.10% 1.73% 1.81%*
Portfolio turnover 46% 103% 90% 67% 35%
- ------------------------------------------------------------------------------------------------------
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Large Cap Growth Portfolio (the "Portfolio"),
(formerly Equity Portfolio), a separate series of The Premium Portfolios (the
"Trust"), is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator. On
November 1, 1997 the CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $12,183,616, $34,554,616, $38,508,816 and
$16,346,503 including $1,107,028, $3,598,984, $4,092,260 and $1,450,560,
respectively of unrealized appreciation to the Portfolio in exchange for an
interest in the Portfolio.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. Federal Income Taxes The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
E. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
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.
F. Change in Fiscal Year End During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs such duties and receives such compensation
from Citibank as from time to time are agreed to by Citibank and SFG. Citibank
is a wholly-owned subsidiary of Citicorp. Citicorp recently announced its
intention to merge with The Travelers Group. Completion of the merger is subject
to the satisfaction of certain conditions.
The management fees paid to Citibank, amounted to $1,438,479 for the six
months ended April 30, 1998. Management fees are computed at the annual rate of
0.60% of the Portfolio's average daily net assets.
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 $234,318,706 and $223,882,192,
respectively, for the six months ended April 30, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at April 30, 1998, as
computed on a federal income tax basis, are as follows:
Aggregate cost $416,940,098
- --------------------------------------------------------------------------------
Gross unrealized appreciation $126,120,465
Gross unrealized depreciation (1,071,133)
- --------------------------------------------------------------------------------
Net unrealized appreciation $125,049,332
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with the other CitiFunds, 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 six
months ended April 30, 1998, the commitment fee allocated to the Portfolio was
$443. Since the line of credit was established, there have been no borrowings.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Sub-Administrator and Distributor
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
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
Price Waterhouse 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 Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut 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.
(C)1998 Citicorp [LOGO] Printed on recycled paper CFS/LCG/498
<PAGE>
Semi-Annual Report o April 30, 1998
[Logo]
Small Cap Growth Portfolio
SMALL CAP STOCKS
-----------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
-----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Portfolio Highlights 4
................................................................................
Fund Performance 5
................................................................................
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
Statement of Assets and Liabilities 6
................................................................................
Statement of Operations 7
................................................................................
Statement of Changes in Net Assets 8
................................................................................
Financial Highlights 9
................................................................................
Notes to Financial Statements 10
................................................................................
SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments 13
................................................................................
Statement of Assets and Liabilities 15
................................................................................
Statement of Operations 15
................................................................................
Statement of Changes in Net Assets 16
................................................................................
Financial Highlights 16
................................................................................
Notes to Financial Statements 17
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from November 1, 1997, through April
30, 1998, for the CitiFundsSM Small Cap Growth 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.
Overall, the past six months were positive for small-capitalization growth
stocks. After setbacks in the aftermath of the Asian financial crisis during the
fourth quarter of 1997, small-cap growth stocks rebounded during the first four
months of 1998. We are pleased to report that the Fund participated in this
market sector's gains.
Among the highlights of the reporting period, your Fund has changed its name
to CitiFunds Small Cap Growth Portfolio. We believe that the new name provides a
more accurate description of the Portfolio's holdings. The Portfolio's
investment objective and strategy have not changed.
As you have probably heard, Citicorp recently announced its intention to
merge with The Travelers Group. The completion of the merger is subject to the
satisfaction of certain conditions. As necessary, we will provide you with
information that specifically affects the Fund.
On behalf of the Board of Trustees, we want to thank you for your continued
participation and confidence in the CitiFunds family of funds.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
May 16, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
Returns from small-capitalization growth stocks were mixed during the six-month
period, declining modestly in the final months of 1997 and rebounding sharply in
the first four months of 1998. Although small-cap stocks produced posi tive
returns over the past six months, they continued to lag large-capitalization
stocks as they have for the past several years.
The relative underperformance of small-cap stocks is contrary to long-term
historical trends, in which small-cap growth companies have significantly
outperformed their larger counterparts. Why have the past few years been
different? Investors have shown a preference for well established companies with
track records of consistent growth and ready liquidity in the financial markets.
Last summer, it appeared that smaller companies would finally regain their
market leadership position. However, October's sharp decline of the Hong Kong
stock market and the ensuing turmoil in Asia effectively stopped that rally,
even though most U.S. small companies derive their revenues from domestic
sources, not from the emerging markets. A "flight to quality" ensued in the
Asian crisis' aftermath, and investors flocked toward highly liquid blue-chip
stocks.
The portfolio has taken this opportunity to find attractive investments in
fast-growing, small companies. Over the last six months, we have established a
number of new positions. As always, we identified these new holdings using our
disciplined, "bottom up" investment approach. We look for fast-growing small
companies with talented management teams, strong market positions and
conservative accounting standards.
Unlike some stock funds, we do not attempt to achieve a predetermined balance
among industries or market sectors within the portfolio. Instead, we look at
individual companies one by one, buying those that meet our growth criteria,
regardless of their industry affiliations. We do, however, track our industry
concentrations in order to avoid over-exposing the Portfolio to any one market
sector.
We believe that many small-cap growth stocks are attractively valued by
historical standards. While the longstanding rally of large-cap growth stocks
has propelled them to the high end of their historic valuation range, small-cap
stocks are near the low end of their range relative to large-cap stocks. In our
view, the valuation gap will narrow over the next several months as small-cap
stocks advance and potentially outperform large-cap stocks.
What's more, we expect small-cap growth stocks to benefit from a confluence
of positive forces. First, and most important, small-cap companies have grown
their earnings at a faster average rate than large-cap companies since the
second quarter of 1997. In addition, a strong U.S. dollar relative to other
currencies traditionally helps small companies with primarily domestic markets.
The capital gains tax cut, enacted last year, should make small-cap stocks more
attractive to long-term investors. Finally, the volume of initial public
offerings, which had attracted money that otherwise likely would have gone to
the small-cap stock market, has dropped to more normal levels.
When will small-cap stocks make their move? No one can predict the future.
However, we believe that stocks of small-cap companies will rally if they
continue to announce higher earnings growth over the remainder of this year.
<PAGE>
FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid semi-annually, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
June 21, 1995 Distributed annually, if any
NET ASSETS AS OF 4/30/98 BENCHMARKS
$29.3 million o Lipper Small Cap Funds Average
o Russell 2000 Growth Index
<PAGE>
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS AS OF APRIL 30, 1998 (Unaudited)
COMPANY, INDUSTRY % OF NET ASSETS
Lamar Advertising Co., Commercial Services 2.85%
- --------------------------------------------------------------------------------
Lernout & Hauspie Speech Products, Electronics/Technical Services 2.78%
- --------------------------------------------------------------------------------
Whittman Hart Inc., Electronics/Technical Services 2.73%
- --------------------------------------------------------------------------------
Abacus Direct Corp., Commercial Services 2.69%
- --------------------------------------------------------------------------------
Sirrom Capital Corp., Finance 2.53%
- --------------------------------------------------------------------------------
Renal Treatment Centers Inc., Health Services/Technology 2.45%
- --------------------------------------------------------------------------------
Metris Companies Inc., Finance 2.40%
- --------------------------------------------------------------------------------
Central Packing Corp., Consumer Services 2.28%
- --------------------------------------------------------------------------------
Whole Foods Market Inc., Retail 2.22%
- --------------------------------------------------------------------------------
Snyder Communications Inc., Commercial Services 2.08%
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1998 (Unaudited)
Industrial 2%
*Short Term 3%
Commercial Services 24%
Electronics/Technical Services 20%
Consumer 12%
Finance 11%
Health Services 11%
Retail/Manufacturer 6%
Commodities & Processing 4%
Energy Minerals 4%
Transportation 3%
*Includes cash and net other assets.
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
SIX ONE 6/21/95
ALL PERIODS ENDED APRIL 30, 1998 (Unaudited) MONTHS** YEAR* (INCEPTION)*
- --------------------------------------------------------------------------------
CitiFunds Small Cap Growth Portfolio 10.45% 44.35% 39.27%
Lipper Small Cap Funds Average 11.08% 45.62% 23.71%+
Russell 2000 Growth Index 9.95% 43.70% 17.96%+
* Average Annual Total Return
** Not Annualized
+ From 6/30/95
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$25,793 (as of 4/30/98). The graph shows how the Fund compares to its benchmarks
over the same period.
<PAGE>
CitiFunds Small Lipper Small Russell 2000
Cap Growth Cap Funds Growth Index
Portfolio Average (unmanaged)
6/30/95 $10,050 $10,000 $10,000
7/31/95 10,970 10,748 10,779
8/31/95 11,640 10,925 10,912
9/30/95 12,000 11,187 11,136
10/31/95 11,980 10,811 10,588
11/30/95 13,550 11,211 11,055
12/31/95 14,478 11,375 11,301
1/31/96 14,842 11,294 11,207
2/29/96 16,297 11,763 11,718
3/31/96 17,126 12,077 11,950
4/30/96 19,199 12,979 12,868
5/31/96 20,584 13,546 13,528
6/30/96 19,963 13,022 12,649
7/31/96 17,674 11,902 11,104
8/31/96 19,870 12,623 11,926
9/30/96 20,712 13,264 12,540
10/31/96 20,076 12,999 12,000
11/30/96 20,445 13,377 12,333
12/31/96 19,950 13,580 12,574
1/31/97 20,804 13,928 12,878
2/28/97 19,599 13,332 12,100
3/31/97 18,416 12,633 11,246
4/30/97 17,868 12,537 11,115
5/31/97 20,497 14,060 12,786
6/30/97 21,615 14,802 13,220
7/31/97 22,352 15,724 13,896
8/31/97 22,681 16,012 14,313
9/30/97 24,627 17,226 15,456
10/31/97 23,352 16,461 14,527
11/30/97 23,143 16,219 14,181
12/31/97 23,105 16,355 14,189
1/31/98 22,071 16,074 14,001
2/28/98 24,690 17,325 15,237
3/31/98 25,690 18,131 15,875
4/30/98 25,793 18,280 15,972
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Notes: 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 and reflects certain voluntary fee waivers
which may be terminated at any time. If the waivers were not in place, the
fund's returns would have been lower.
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investment in Small Cap Growth Portfolio, at value (Note 1A) $29,108,420
Receivable for shares of beneficial interest sold 184,278
Receivable from the Sub-Administrator 50,102
- -------------------------------------------------------------------------------
Total assets 29,342,800
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 15,866
Accrued expenses and other liabilities 52,900
- -------------------------------------------------------------------------------
Total liabilities 68,766
- -------------------------------------------------------------------------------
NET ASSETS for 1,304,011 shares of beneficial
interest outstanding $29,274,034
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $20,651,052
Unrealized appreciation 8,051,800
Accumulated net realized gain 695,099
Undistributed net investment loss (123,917)
- -------------------------------------------------------------------------------
Total $29,274,034
- -------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $22.45
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME/LOSS (Note 1B):
Dividend Income from Small Cap Growth Portfolio $24,068
Interest Income from Small Cap Growth Portfolio 25,565
Allocated Expenses from Small Cap Growth Portfolio (112,440)
- -------------------------------------------------------------------------------
$ (62,807)
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 44,994
Distribution fees (Note 3) 32,138
Shareholder reports 18,808
Auditing fees 11,025
Registration fees 10,901
Custody and Fund Accounting fees 9,437
Legal fees 7,427
Transfer agent fees 6,500
Trustees fees 5,902
Miscellaneous 9,074
- -------------------------------------------------------------------------------
Total expenses 156,206
Less expenses assumed by the Administrator
(Note 6) (50,102)
Less aggregate amount waived by the Manager
(Note 2) (44,994)
- -------------------------------------------------------------------------------
Net expenses 61,110
- -------------------------------------------------------------------------------
Net investment loss (123,917)
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM
SMALL CAP GROWTH PORTFOLIO:
Net realized gain 736,946
Net change in unrealized appreciation 1,932,607
- -------------------------------------------------------------------------------
Net realized and unrealized gain from Small
Cap Growth Portfolio 2,669,553
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,545,636
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment gain (loss) $ (123,917) $ (181,929) $ (20,835)
Net realized gain 736,946 299,622 1,458,685
Net change in unrealized appreciation 1,932,607 3,648,039 1,745,364
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,545,636 3,765,732 3,183,214
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain (1,049,618) (88,390) (1,756,057)
- ----------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (Note 5):
Net proceeds from sale of shares 4,823,538 5,626,760 20,246,660
Net asset value of shares issued to
shareholders from reinvestment
of distributions 1,020,162 86,659 1,743,625
Cost of shares repurchased (3,864,989) (7,902,725) (4,253,714)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from transactions in shares
of beneficial interest 1,978,711 (2,189,306) 17,736,571
- ----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 3,474,729 1,488,036 19,163,728
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 25,799,305 24,311,269 5,147,541
- ----------------------------------------------------------------------------------------------
End of period (undistributed
net investment loss of $123,917,
$0 and $0 respectively) $29,274,034 $25,799,305 $24,311,269
- ----------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS JUNE 21, 1995
ENDED ENDED (COMMENCEMENT
APRIL 30, OCTOBER 31, YEAR ENDED OF OPERATIONS)
1998 1997 DECEMBER 31, TO DECEMBER 31,
(Unaudited) (Note 1F) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period $ 21.24 $ 18.21 $ 14.32 $10.00
- -------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) 0.095) (0.138)(+) (0.016) 0.05
Net realized and unrealized gain 2.168 3.236(+) 5.407 4.42
- -------------------------------------------------------------------------------------------------
Total from operations 2.073 3.098 5.391 4.47
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.05)
Net realized gain (0.863) (0.068) (1.501) (0.10)
- -------------------------------------------------------------------------------------------------
Total distributions (0.863) (0.068) (1.501) (0.15)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 22.45 $ 21.24 $ 18.21 $14.32
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $29,274 $25,799 $24,311 $5,148
Ratio of expenses to average
net assets (A) 1.35%* 1.35%* 0.88% 0%
Ratio of net investment income
(loss) to average net assets (0.96)% *(0.87)%* (0.13)% 1.21%*
Total return 10.45%** 17.05%** 37.80% 44.78%**
Note: If Agents of the Fund and Agents of Small Cap Growth Portfolio had not voluntarily waived a
portion of their fees, assumed Fund expenses for the periods indicated and had expenses been
limited to that required by certain state securities laws for the period ended December 31, 1995,
the net investment income (loss) per share and the ratios would have been as follows:
Net investment loss per share $(0.308) $(0.252)+ $(0.133) $(0.288)
RATIOS:
Expenses to average net assets (A) 2.09%* 2.06%* 1.83% 2.50%*
Net investment loss to average
net assets (1.70)%* (1.58)%* (1.08)% (1.29)%*
- -------------------------------------------------------------------------------------------------
* Annualized
** Not Annualized
+ The per share amounts were computed using a monthly average number of shares outstanding during
the period.
(A) Includes the Fund's share of Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio)
allocated expenses for the periods indicated.
See notes to financial statements
</TABLE>
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Small Cap Growth Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (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 Small Cap Growth Portfolio (the
"Portfolio"), (formerly Small Cap Equity Portfolio), a management investment
company for which Citibank, N.A. ("Citibank") serves as Investment Manager.
CFBDS, Inc. ("CFBDS") (formerly Landmark Funds Broker-Dealer Services, Inc.)
acts as the Fund's Sub-Administrator and Distributor.
The Trust seeks to achieve the Fund's investment objective of long-term
capital growth by investing all of its investable assets in the Portfolio, an
open-end, diversified management investment company having the same investment
objective and policies and substantially the same investment restrictions as the
Fund. The value of such investment reflects the Fund's proportionate interest
(11.60% at April 30, 1998) in the net assets of the Portfolio.
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 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 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 differ 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. For the ten months ended
October 31, 1997, the Fund reclassified $181,929 to undistributed net investment
income, $796,539 to accumulated net gain on investments and $978,468 from
paid-in-capital.
F. Change in Fiscal Year End During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. 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. MANAGEMENT FEES Citibank is responsible for overall management of the Funds'
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp. Citicorp recently announced its intentions to merge with The Travelers
Group. Completion of the merger is subject to the satisfaction of certain
conditions.
The management fees paid to Citibank, are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.35% of the Funds' average
daily net assets. The management fee amounted to $44,994, all of which was
voluntarily waived for the six months ended April 30, 1998.
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. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, under which the Fund pays
fees for distribution, sales and marketing and shareholder services at an annual
rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $32,138 for the six months ended April 30, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the period aggregated $4,711,670 and $4,299,061, 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 :
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 220,871 295,369 1,099,302
Shares issued to shareholders from
reinvestment of distributions 53,147 4,540 96,298
Shares repurchased (184,400) (420,429) (220,253)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) 89,618 (120,520) 975,347
- ----------------------------------------------------------------------------------------------
</TABLE>
6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the six months ended April 30, 1998, which
amounted to $50,102.
<PAGE>
SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS April 30, 1998
(Unaudited)
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 97.0%
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 23.6%
- -------------------------------------------------------------------------------
Abacus Direct Corp.* 119,100 $ 6,773,813
AHL Services Inc.* 114,980 3,923,693
Cultural Access Worldwide * 132,800 1,875,800
Lamar Advertising Co.* 208,320 7,187,040
Metro Networks Inc.* 75,910 3,017,423
Metzler Group Inc.* 74,100 2,565,712
NFO Worldwide Inc.* 176,100 3,687,094
Probusiness Services Inc.* 121,575 3,373,706
Profit Recovery Group International Inc.* 182,500 4,745,000
Rental Service Corp.* 172,770 5,021,128
Romac International Inc.* 117,480 3,113,220
Snyder Communications Inc.* 123,580 5,252,150
Suiza Foods Corp.* 88,180 5,224,665
Wilmar Industries Co.* 149,110 3,560,001
-----------
59,320,445
-----------
COMMODITIES & PROCESSING -- 4.4%
- -------------------------------------------------------------------------------
ITEQ Inc.* 314,370 4,008,218
OM Group Inc. 105,710 4,684,274
Synthetic Industries Inc.* 103,420 2,365,732
-----------
11,058,224
-----------
CONSUMER DURABLE -- 1.8%
- -------------------------------------------------------------------------------
Tower Automotive Inc.* 85,180 4,541,159
-----------
CONSUMER NON-DURABLES -- 1.3%
- -------------------------------------------------------------------------------
Beringer Wine Estate Holdings * 71,140 3,308,010
-----------
CONSUMER SERVICES -- 9.2%
- -------------------------------------------------------------------------------
American Italian Pasta Co.* 58,470 1,812,570
Central Packing Corp. 122,415 5,738,203
Gray Communications Systems Inc.* 106,030 3,154,393
Heftel Broadcasting Corp.* 98,368 4,315,896
Premier Parks Inc.* 94,280 5,244,325
Suburban Lodges America Inc.* 157,050 2,905,425
-----------
23,170,812
-----------
ELECTRONICS/TECHNICAL SERVICES -- 19.6%
- -------------------------------------------------------------------------------
CDW Computer Centers Inc.* 86,030 4,172,455
Etec Systems Inc.* 77,350 4,389,613
Harbinger Corp.* 92,830 3,376,691
Inacom Corp.* 114,510 4,100,889
Lernout & Hauspie Speech Products* 109,960 7,009,950
N2K Inc.* 24,620 618,577
PC Connection Inc.* 46,935 1,017,903
QAD Inc.* 220,600 3,060,825
Renaissance Worldwide Inc.* 198,780 3,565,616
Sapient Corp.* 66,560 3,286,400
Sipex Corp.* 126,280 2,509,815
Speedfam International Inc.* 122,850 3,562,650
Tier Technologies Inc.* 78,920 1,588,265
Whittman Hart Inc.* 156,780 6,878,722
-----------
49,138,371
-----------
ENERGY MINERALS -- 4.3%
- -------------------------------------------------------------------------------
Forcenergy Inc.* 143,620 3,312,236
Key Energy Group Inc.* 156,400 2,922,725
Lomak Petroleum Inc. 239,230 3,304,365
Superior Energy Services Inc.* 98,840 1,099,595
-----------
10,638,921
-----------
FINANCE -- 11.0%
- -------------------------------------------------------------------------------
Allied Group Inc. 91,575 2,735,803
Executive Risk Inc. 76,980 5,133,604
First Republic Bank of San Francisco* 66,450 2,284,219
Litchfield Financial Corp. 48,100 1,106,300
Medallion Financial Corp. 127,800 3,818,025
Metris Companies Inc.* 106,800 6,054,225
Sirrom Capital Corp. 213,780 6,386,678
-----------
27,518,854
-----------
HEALTH SERVICES/TECHNOLOGY -- 11.0%
- -------------------------------------------------------------------------------
Concentra Managed Care Inc.* 131,570 4,095,116
Henry Schein Inc.* 93,830 3,659,370
Human Genome Sciences Inc.* 108,310 3,939,776
Parexel International Corp.* 137,310 4,599,886
Renal Treatment Centers Inc.* 186,058 6,163,171
Somas Medical Technologies* 126,110 1,513,320
Viropharma Inc.* 169,700 3,690,975
-----------
27,661,614
-----------
INDUSTRIAL SERVICES -- 2.3%
- -------------------------------------------------------------------------------
American Disposal Services Inc.* 77,550 3,109,270
Service Experts Inc.* 79,340 2,638,055
-----------
5,747,325
-----------
PRODUCER MANUFACTURER -- 0.8%
- -------------------------------------------------------------------------------
Simpson Manufacturing Inc.* 49,400 2,056,275
-----------
RETAIL -- 4.8%
- -------------------------------------------------------------------------------
CD Now Inc.* 91,720 2,935,040
Men's Wearhouse Inc.* 83,090 3,500,166
Whole Foods Market Inc.* 90,350 5,590,406
-----------
12,025,612
-----------
TRANSPORTATION -- 2.9%
- --------------------------------------------------------------------------------
Eagle U.S.A. Airfreight Inc.* 146,330 4,810,599
Hub Group Inc.* 92,550 2,441,006
-----------
7,251,605
TOTAL COMMON STOCKS 243,437,227
-----------
ISSUER VALUE
- -------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 3.4%
- -------------------------------------------------------------------------------
Sanwa Repurchase Agreement
5.42% due 5/01/98 proceeds
at maturity $ 8,616,033
(collateralized by $10,037,000
U.S. Treasury Strip zero coupon
due 2/15/00) $ 8,612,000
- -------------------------------------------------------------------------------
Total Investments
(Identified Cost
$200,229,565) 100.4% 252,049,227
Other Assets, Less Liabilities (0.4) (1,058,464)
----- ------------
Net Assets 100.0% $250,990,763
===== ============
* Non income producing securities
See notes to financial statements
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $200,229,565) $252,049,227
Cash 80
Interest receivable 1,296
- -------------------------------------------------------------------------------
Total assets 252,050,603
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 810,000
Payable to affiliates-- Management fees (Note 2) 153,818
Accrued expenses and other liabilities 96,022
- -------------------------------------------------------------------------------
Total liabilities 1,059,840
- -------------------------------------------------------------------------------
NET ASSETS $250,990,763
- -------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $250,990,763
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $213,597
Interest income 225,187
- -------------------------------------------------------------------------------
$ 438,784
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 848,002
Custody and Fund Accounting fees 116,471
Auditing fees 11,850
Legal fees 11,692
Trustees fees 2,593
Miscellaneous 4,381
- -------------------------------------------------------------------------------
Total expenses 994,989
- -------------------------------------------------------------------------------
Net investment loss (556,205)
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net change in unrealized appreciation of
investments 43,376,257
Less unrealized appreciation from contributed
assets (Note 1) 25,188,211
- -------------------------------------------------------------------------------
Unrealized appreciation of investments 18,188,046
Net realized gain from investment transactions 6,779,213
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 24,967,259
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $24,411,054
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997 DECEMBER 31,
(Unaudited) (Note 1F) 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (loss) $ (556,205) $ (139,259) $ 28,536
Net realized gain on investment transactions 6,779,213 785,204 1,063,995
Unrealized appreciation of investments 18,188,046 6,200,702 1,516,882
- ------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 24,411,054 6,846,647 2,609,413
- ------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 221,191,652 18,404,723 45,631,942
Value of withdrawals (44,209,960) (22,795,675) (6,088,455)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions 176,981,692 (4,390,952) 39,543,487
- ------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 201,392,746 2,455,695 42,152,900
NET ASSETS:
Beginning of period 49,598,017 47,142,322 4,989,422
- ------------------------------------------------------------------------------------------------
End of period $250,990,763 $49,598,017 $47,142,322
- ------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS TEN MONTHS JUNE 21, 1995
ENDED ENDED (COMMENCEMENT
APRIL 30, OCTOBER 31, YEAR ENDED OF OPERATIONS)
1998 1997 DECEMBER 31, TO DECEMBER 31,
(Unaudited) (Note 1F) 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $250,991 $49,598 $47,142 $4,989
Ratio of expenses to average
net assets 0.88%* 0.85%* 0.61% 0%
Ratio of net investment income
(loss) to average net assets (0.49)%* (0.37)%* 0.15% 1.22%*
Portfolio turnover 12% 108% 89% 41%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed
Portfolio expenses for the periods indicated and had expenses been limited to that required by
certain state securities law for the period ended December 31, 1995, the ratios would have been as
follows:
RATIOS:
Expenses to average net assets 0.88%* 1.04%* 1.17% 2.50%*
Net investment loss to average
net assets (0.49)%* (0.56)%* (0.41)% (1.28)%*
- ----------------------------------------------------------------------------------------------------
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Growth Portfolio (the "Portfolio"),
(formerly Small Cap Equity Portfolio), a separate series of The Premium
Portfolios (the "Portfolio Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The Investment Manager of the Portfolio is Citibank N.A.,
("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the
Portfolio's Sub-Administrator. On November 1, 1997 the CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 each
transferred a portion of their investable assets in the amount of $15,439,632,
$38,272,468, $75,166,816 and $37,432,299 including $2,166,532, $5,841,516,
$11,815,501 and $5,364,662, respectively of unrealized appreciation to the
Portfolio in exchange for an interest in the Portfolio.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services 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. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. Change in Fiscal Year End During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolios' business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs such duties and receives such compensation
from Citibank as from time to time are agreed to by Citibank and SFG. Citibank
is a wholly-owned subsidiary of Citicorp. Citicorp recently announced its
intention to merge with The Travelers Group. Completion of the merger is subject
to the satisfaction of certain conditions. The management fees paid to Citibank,
amounted to $848,002 for the six months ended April 30, 1998. The management
fees are computed at the annual rate of 0.75% of the Portfolio's average daily
net assets.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $27,493,879 and $51,945,025,
respectively, for the six months ended April 30, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at April 30, 1998, as
computed on a federal income tax basis, are as follows:
Aggregate cost $200,229,565
- -------------------------------------------------------------------------------
Gross unrealized appreciation $ 59,805,259
Gross unrealized depreciation (7,985,597)
- -------------------------------------------------------------------------------
Net unrealized appreciation $ 51,819,662
- -------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with the other CitiFunds 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 six
months ended April 30, 1998, the commitment fee allocated to the Portfolio was
$217. Since the line of credit was established, there have been no borrowings.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Sub-Administrator and Distributor
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
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
Price Waterhouse 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 Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut 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.
(C)1998 Citicorp [LOGO] Printed on recycled paper CFS/SCG/498
<PAGE>
Semi-Annual Report o April 30, 1998
[LOGO]
Small Cap Value Portfolio
SMALL CAP STOCKS
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Portfolio Highlights 4
................................................................................
Fund Performance 5
................................................................................
CITIFUNDS SMALL CAP VALUE PORTFOLIO
Statement of Assets and Liabilities 6
................................................................................
Statement of Operations 7
................................................................................
Statement of Changes in Net Assets 8
................................................................................
Financial Highlights 9
................................................................................
Notes to Financial Statements 10
................................................................................
SMALL CAP VALUE PORTFOLIO
Portfolio of Investments 13
................................................................................
Statement of Assets and Liabilities 15
................................................................................
Statement of Operations 15
................................................................................
Statement of Changes in Net Assets 16
................................................................................
Financial Highlights 16
................................................................................
Notes to Financial Statements 17
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from March 2, 1998, (Commencement of
Operations) through April 30, 1998, for the CitiFundsSM Small Cap Value
Portfolio. Inside, we discuss the market conditions faced by the Portfolio's
subadviser, Franklin Advisory Services, Inc., the strategies it employed and its
outlook for the future.
Overall, the past several months were positive for small-capitalization
stocks. After setbacks in the aftermath of the Asian financial crisis during the
fourth quarter of 1997, small-cap stocks rebounded during the first four months
of 1998. We are pleased to report that CitiFunds Small Cap Value Portfolio
participated in a portion of this market sector's gains since it began
operations on March 2, 1998.
As you have probably heard, Citicorp recently announced its intention to
merge with The Travelers Group. The completion of the merger is subject to the
satisfaction of certain conditions. As necessary, we will provide you with
information that specifically affects the Fund.
On behalf of the Board of Trustees, we want to thank you for your
participation and confidence in the CitiFunds family of funds.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
May 16, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
Returns from small-capitalization stocks were mixed over the past several
months, declining modestly in the final months of 1997 and rebounding sharply in
the first four months of 1998. Although small-cap stocks produced positive
returns, they continued to lag large-capitalization stocks as they have for the
past several years.
The relative underperformance of small-cap stocks is contrary to long-term
historical trends, in which small-cap companies have significantly outperformed
their larger counterparts. Why have the past few years been different? Investors
have recently shown a preference for large, well-established companies with
track records of consistent growth and ready liquidity in the financial markets.
In this environment, the Portfolio found attractive investments in small
companies. The Portfolio's subadviser identified these holdings using a highly
disciplined, "bottom up" investment approach. As value investors, the
subadviser's management team looks for small companies with bright prospects,
but whose stocks are selling at valuations substantially lower than broader
market averages. Such stocks may be companies whose potential has not yet been
recognized by analysts and investors, or they may be relatively well-known
companies experiencing temporary problems. The subadviser's strategy is to buy
these stocks when they are believed to be inexpensively priced and hold them
until their true values are reached.
Unlike some stock funds, the Portfolio's managers do not attempt to achieve a
predetermined balance among industries or market sectors within the portfolio.
Instead, they look at individual companies one by one, buying those that meet
their value criteria regardless of their industry affiliations. This approach
sometimes leads to a relative concentration of assets in specific industries.
Since inception, the Portfolio has held a number of stocks in the financial
sector, which includes banks, thrifts, insurance companies and other financial
services providers. The subadviser found attractive investments in the consumer
durables market sector. They've also found inexpensively priced stocks in
certain electronic technology companies.
The subadviser believes that, overall, small-cap stocks are attractively
valued by historical standards. While the longstanding rally of large-cap growth
stocks has propelled them to the high end of their historic valuation range,
small-cap stocks are near the low end of their range relative to large-cap
stocks. In the subadviser's view, the valuation gap will narrow over time as
small-cap stocks advance and potentially outperform large-cap stocks.
Regardless of the future direction of the markets, however, the subadviser
expects to continue to find attractively valued stocks of individual small-cap
companies. Because the management team attempts to buy stocks when they are out
of favor and sell them when their true values are reached, macroeconomic and
market events have little bearing on their investment decisions. Indeed, the
subadviser believes that the key to investment success is to find inexpensively
priced stocks and hold them for the long term. The Portfolio's managers
generally sell investments only when they have reached predetermined target
prices. In our view, adopting a long-term perspective on carefully selected
stocks may be an effective way to help build wealth and control risks over time.
<PAGE>
FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid semi-annually, if any
PORTFOLIO SUBADVISER CAPITAL GAINS
Franklin Advisory Services, Inc. Distributed annually, if any
COMMENCEMENT OF OPERATIONS BENCHMARKS
March 2, 1998 o Lipper Small Cap Funds Average
o Russell 2000(R) Value Index
NET ASSETS AS OF 4/30/98
$55.5 million
<PAGE>
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS AS OF APRIL 30, 1998 (Unaudited)
COMPANY, INDUSTRY % OF NET ASSETS
JLG Industries, Inc., Capital Goods 2.65%
- --------------------------------------------------------------------------------
LTV Corp., Basic Industries 2.49%
- --------------------------------------------------------------------------------
Standard Commercial Corp., Consumer Basics 2.34%
- --------------------------------------------------------------------------------
Komag, Inc., Technology 2.07%
- --------------------------------------------------------------------------------
United Industrial Corp., Capital Goods 2.04%
- --------------------------------------------------------------------------------
Dimon Inc., Consumer Basics 1.96%
- --------------------------------------------------------------------------------
Coachmen Industries, Inc., Consumer Durable Goods 1.87%
- --------------------------------------------------------------------------------
Beazer Homes USA Inc., Shelter 1.83%
- --------------------------------------------------------------------------------
Ekco Group Inc., Consumer Basics 1.80%
- --------------------------------------------------------------------------------
MMI Companies Inc., Consumer Basics 1.75%
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1998 (Unaudited)
Consumer 29%
Basic Industries 22%
Capital Goods 15%
Finance 12%
Shelter 9%
Technology 6%
Energy/Utilities 2%
Transportation 2%
*Short Term 2%
Corporate Bonds 1%
*Includes cash and net other assets.
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
FOR THE PERIOD MARCH 2, 1998 SINCE
(COMMENCEMENT OF OPERATIONS) 3/2/98
TO APRIL 30, 1998 (Unaudited) (INCEPTION)*
- --------------------------------------------------------------------------------
CitiFunds Small Cap Value Portfolio 3.40%
Lipper Small Cap Funds Average 5.51%+
Russell 2000(R)Value Index 4.57%+
* Not Annualized
+ From 2/28/98
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$10,340 (as of 4/30/98). The graph shows how the Fund compares to its benchmarks
over the same period.
CitiFunds Small Lipper Small Russell 2000
Cap Value Cap Funds Value Index
Portfolio Average (unmanaged)
3/2/98 $10,000.00 $10,000.00 $10,000.00
3/31/98 10,380.00 10,465.00 10,405.60
4/30/98 10,340.00 10,550.81 10,456.59
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Notes: 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, and reflects voluntary fee waivers which may
be terminated at anytime. If the waivers were not in place, the Fund's returns
would have been lower.
<PAGE>
<TABLE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in Small Cap Value Portfolio, at value (Note 1A) $54,198,928
Receivable for shares of beneficial interest sold 1,314,284
- -------------------------------------------------------------------------------------------
Total assets 55,513,212
- -------------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 10,267
Payable to affiliates - Management fees (Note 2) 10,339
Accrued expenses and other liabilities 29,185
- -------------------------------------------------------------------------------------------
Total liabilities 49,791
- -------------------------------------------------------------------------------------------
NET ASSETS for 5,364,158 shares of beneficial interest outstanding $55,463,421
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $54,308,031
Unrealized appreciation 1,002,607
Accumulated net realized gain 187,275
Undistributed net investment (loss) (34,492)
- -------------------------------------------------------------------------------------------
Total $55,463,421
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE OF
BENEFICIAL INTEREST $10.34
- -------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Dividend Income from Small Cap Value Portfolio $ 43,958
Interest Income from Small Cap Value Portfolio 25,104
Allocated Expenses from Small Cap Value Portfolio (57,230)
- ------------------------------------------------------------------------------------------
$ 11,832
- ------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 17,139
Distribution fees (Note 3) 17,139
Transfer agent fees 9,000
Audit fees 6,725
Shareholder reports 5,011
Legal fees 3,000
Custodian fees 2,000
Registration fees 1,579
Trustees fees 870
Miscellaneous 1,000
- ------------------------------------------------------------------------------------------
Total expenses 63,463
Less aggregate amount waived by the Manager (Note 2) (17,139)
- ------------------------------------------------------------------------------------------
Net expenses 46,324
- ------------------------------------------------------------------------------------------
Net investment (loss) (34,492)
- ------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM
SMALL CAP VALUE PORTFOLIO:
Net realized gain 187,275
Net change in unrealized appreciation 1,002,607
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain from Small Cap Value Portfolio 1,189,882
- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,155,390
- ------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment (loss) $ (34,492)
Net realized gain 187,275
Net change in unrealized appreciation 1,002,607
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,155,390
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --
Net realized gain --
- -------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders --
- -------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5):
Net proceeds from sale of shares 56,356,219
Net asset value of shares issued to shareholders from reinvestment
of distributions --
Cost of shares repurchased (2,048,188)
- -------------------------------------------------------------------------------------------
Net increase in net assets from transactions in shares of beneficial interest 54,308,031
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 55,463,421
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- -------------------------------------------------------------------------------------------
End of period (including undistributed net investment loss of $34,492) $55,463,421
- -------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Net Asset Value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.006)
Net realized and unrealized gain (loss) on investments 0.346
- --------------------------------------------------------------------------------
Total from operations 0.340
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total distributions --
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.34
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $55,463
Ratio of expenses to average net assets (A) 1.50%*
Ratio of net investment income (loss) to average net assets (0.50%)*
Total return 3.40%**
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment income (loss) per share and the ratios would have been as
follows:
Net investment (loss) per share $(0.010)
Ratios:
Expenses to average net assets (A) 1.76%*
Net investment (loss) to average net assets (0.76)%*
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Includes the Fund's share of Small Cap Value Portfolio allocated expenses
for the period indicated.
See notes to financial statements
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Small Cap Value Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (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 Small Cap Value Portfolio (the
"Portfolio"), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Manager. CFBDS, Inc. ("CFBDS") acts as the
Fund's Sub-Administrator and Distributor.
The Trust seeks to achieve the Fund's investment objective of long-term
capital growth by investing all of its investable assets in the Portfolio, an
open-end, diversified management investment company having the same investment
objective and policies and substantially the same investment restrictions as the
Fund. The value of such investment reflects the Fund's proportionate interest
(22.3% at April 30, 1998) in the net assets of the Portfolio.
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 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 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 differ 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. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs and has a separate Management Agreement with the Fund. Citibank
also provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp. Citicorp recently announced its intentions to merge with The Travelers
Group. Completion of the merger is subject to the satisfaction of certain
conditions.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.25% of the Fund's average
daily net assets. The management fee amounted to $17,139, all of which was
voluntarily waived for the period March 2, 1998 (Commencement of Operations) to
April 30, 1998.
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. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, in which the Fund pays
fees for distribution, sales and marketing and shareholder services at an annual
rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $17,139 for the period March 2, 1998 (Commencement
of Operations) to April 30, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the period aggregated $55,075,828 and $2,078,614,
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:
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT
OF OPERATIONS) TO
APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares sold 5,562,995
Shares repurchased (198,837)
- --------------------------------------------------------------------------------
Net increase 5,364,158
- --------------------------------------------------------------------------------
<PAGE>
SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS April 30, 1998
(Unaudited)
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 97.9%
- -------------------------------------------------------------------------------
BASIC INDUSTRIES -- 8.0%
- -------------------------------------------------------------------------------
Atchison Casting Corp.* 161,900 $ 3,065,981
Carpenter Technology Corp. 19,900 1,155,444
Giant Cement Holdings Inc.* 7,900 223,175
Keystone Consolidated Industries Inc.* 250,800 2,962,575
LTV Corp. 476,000 6,188,000
Oil-Dri Corp. of America 205,600 3,276,750
Reliance Steel and Aluminum Co. 58,800 2,374,050
Tuscarora Inc. 12,900 206,400
------------
19,452,375
------------
CAPITAL GOODS -- 14.6%
- -------------------------------------------------------------------------------
American Buildings Co.* 75,600 2,627,100
Astro-Med Inc. 44,500 322,625
Commercial Intertech Corp. 155,900 3,361,594
D.R. Horton Inc. 188,300 3,471,781
ESCO Electronics Corp.* 187,600 3,447,150
Global Industrial Technologies Inc.* 215,800 3,870,912
JLG Industries Inc. 403,200 6,577,200
Perini Corp.* 62,900 625,069
Speedfam International Inc.* 86,500 2,508,500
Ultrak Inc.* 354,700 3,547,000
United Industrial Corp. 393,400 5,065,025
------------
35,423,956
------------
CONSUMER BASICS -- 15.5%
- -------------------------------------------------------------------------------
Cohr Inc.* 290,100 2,266,406
Dimon Inc. 332,900 4,868,663
Ekco Group Inc.* 611,100 4,468,669
MMI Companies Inc. 185,000 4,347,500
Matrix Pharmaceuticals, Inc.* 382,800 1,722,600
Nash Finch Co. 95,000 1,864,375
Orthologic Corp.* 362,000 2,172,000
RLI Corp. 50,700 2,750,475
Schultz Sav-O Stores Inc. 150,950 2,415,200
Schweitzer-Mauduit International Inc. 110,300 3,667,475
Standard Commercial Corp.* 438,400 5,808,800
ThermoTrex Corp.* 61,100 1,218,181
------------
37,570,344
------------
CONSUMER DURABLE GOODS -- 6.0%
- -------------------------------------------------------------------------------
Cavalier Homes Inc. 165,440 1,985,280
Coachmen Industries Inc. 186,500 4,639,187
Flexsteel Industries Inc. 127,700 1,779,819
Haskel International Inc. 150,600 1,524,825
Myers Industries Inc. 35,000 870,625
Republic Automotive Parts Inc.* 81,100 1,601,725
West Co. Inc. 76,600 2,365,025
------------
14,766,486
------------
CONSUMER NON-DURABLES -- 3.8%
- -------------------------------------------------------------------------------
Brookstone Inc.* 152,500 2,192,187
Haverty Furniture Companies Inc. 58,600 1,296,525
Little Switzerland Inc.* 300,000 2,400,000
Ridgeview Inc. 16,900 101,400
Syms Corp.* 218,700 3,239,494
------------
9,229,606
------------
CONSUMER SERVICES -- 3.1%
- -------------------------------------------------------------------------------
Aztar Corp.* 407,700 3,185,156
Cannondale Corp.* 266,400 4,229,100
------------
7,414,256
------------
ENERGY -- 1.6%
- -------------------------------------------------------------------------------
Atwood Oceanics Inc.* 33,100 1,810,157
Nuevo Energy Co. 57,400 2,029,635
------------
3,839,792
------------
FINANCE -- 13.4%
- -------------------------------------------------------------------------------
Allied Life Financial Corp. 119,600 2,870,400
Acceptance Insurance Co. 25,800 588,562
BankAtlantic Bancorp Inc. Class A 44,900 614,569
Centris Group Inc. 182,400 2,587,800
Downey Financial Corp. 97,674 3,388,067
FBL Financial Group Inc. Class A 85,600 2,461,000
Farm Family Holdings Inc.* 76,400 3,041,675
Flagstar Bancorp Inc. 138,200 3,878,238
GA Financial Inc. 86,400 1,706,400
Matrix Capital Corp.* 141,200 3,777,100
Ocwen Asset Investment Corp. 92,800 1,705,200
Penn-America Group Inc. 26,800 552,750
Presidential Life Corp. 28,600 582,725
Professionals Insurance Company Management Group* 27,300 1,126,125
Seibels Bruce Group Inc.* 343,400 2,747,200
Wilshire Financial Services Group Inc.* 37,500 904,688
------------
32,532,499
------------
GENERAL BUSINESS -- 1.7%
- -------------------------------------------------------------------------------
Ennis Business Forms Inc. 339,000 4,068,000
------------
MISCELLANEOUS -- 10.5%
- -------------------------------------------------------------------------------
Aehr Test Systems* 294,700 1,805,036
Commonwealth Industries Inc. 135,100 2,296,700
Duckwall-Alco Stores Inc.* 133,500 2,436,375
Flowserve Corp. 119,300 3,564,088
Kevco Inc.* 70,900 1,648,425
Ladish Inc.* 207,000 3,208,500
Manchester Equipment Inc.* 169,400 656,425
Rockshox Inc. 188,800 1,062,000
Rush Enterprises Inc.* 85,300 1,023,600
Spacehab Inc.* 233,000 2,592,125
Spectralink Corp.* 126,700 554,312
Symons International Group Inc. 84,400 1,582,500
Tropical Sportswear International Corp.* 111,300 1,892,100
Unisource Worldwide Inc. 88,500 1,122,844
------------
25,445,030
------------
SHELTER -- 9.3%
- -------------------------------------------------------------------------------
Ameron International Corp. 42,600 2,625,225
Beazer Homes USA Inc.* 186,000 4,533,750
Butler Manufacturing Co. 34,900 1,302,206
Engle Homes Inc. 33,300 511,988
Morgan Products Ltd.* 425,600 2,553,600
Patrick Industries Inc. 131,500 2,104,000
Ryland Group Inc. 153,300 3,209,719
Southern Energy Homes Inc.* 238,000 2,632,875
U.S. Home Corp.* 73,100 3,033,650
------------
22,507,013
------------
TECHNOLOGY -- 5.7%
- -------------------------------------------------------------------------------
Alliant Techsystems Inc.* 42,000 2,685,375
Interlink Computer Sciences Inc.* 176,600 916,112
Komag Inc.* 331,000 5,130,500
Radisys Corp.* 3,400 92,651
Read-Rite Corp.* 221,700 3,062,231
Trident Microsystems Inc.* 254,300 1,946,984
------------
13,833,853
------------
TRANSPORTATION -- 4.6%
- -------------------------------------------------------------------------------
Fritz Companies Inc.* 243,900 3,567,038
Kenan Transport Co. 70,200 2,316,600
Motor Cargo Industries Inc.* 253,000 3,162,500
Oshkosh Truck Corp. Class B 115,000 2,256,875
------------
11,303,013
------------
UTILITIES -- 0.1%
- -------------------------------------------------------------------------------
NRG Generating (U.S.) Inc.* 14,700 222,337
------------
TOTAL COMMON STOCKS 237,608,560
------------
SHORT-TERM -- 4.3%
- -------------------------------------------------------------------------------
State Street Bank Repurchase Agreement 5.00% due 05/01/98
proceeds at maturity $10,414,446 (collateralized by
$6,755,000 U.S. Treasury Bonds 11.25% due 2/15/15
valued at $10,622,427) 10,413,000
------------
TOTAL INVESTMENTS
(Identified Cost $210,661,984) 102.2% 248,021,560
OTHER ASSETS, LESS LIABILITIES (2.2) (5,457,170)
----- ------------
NET ASSETS 100.0% $242,564,390
===== ============
* Non income producing securities.
See notes to financial statements
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $210,661,984) $248,021,560
Cash 555
Receivable for securities sold 96,797
Dividend and interest receivable 120,724
- --------------------------------------------------------------------------------
Total assets 248,239,636
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 5,441,013
Payable to affiliates-- Management fees (Note 2) 146,357
Accrued expenses and other liabilities 87,876
- --------------------------------------------------------------------------------
Total liabilities 5,675,246
- --------------------------------------------------------------------------------
NET ASSETS $242,564,390
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $242,564,390
- --------------------------------------------------------------------------------
<TABLE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 828,770
Interest income 199,331
- ------------------------------------------------------------------------------------------
$ 1,028,101
- ------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 726,124
Custody and Fund Accounting fees 105,699
Audit fees 13,650
Legal fees 9,730
Trustees fees 2,548
Miscellaneous 3,916
- -------------------------------------------------------------------------------------------
Total expenses 861,667
- -------------------------------------------------------------------------------------------
Net investment income 166,434
- -------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net change in unrealized appreciation of investments 37,359,576
Less realized appreciation from contributed assets 30,313,261
- -------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,046,315
Net realized gain from investment transactions 7,176,125
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 14,222,440
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,388,874
- -------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 166,434
Net realized gain on investment transactions 7,176,125
Net change in unrealized appreciation of investments 7,046,315
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,388,874
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 403,785,426
Value of withdrawals (175,609,910)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 228,175,516
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 242,564,390
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $242,564,390
- --------------------------------------------------------------------------------
<PAGE>
SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $242,564
Ratio of expenses to average net assets 0.89%*
Ratio of net investment income to average net assets 0.17%*
Portfolio turnover 12%
Average commission rate per share (A) $0.0371
- --------------------------------------------------------------------------------
(A) The average commission rate paid is applicable for Funds that invest greater
than 10% of average net assets in equity transactions on which commissions
are charged.
* Annualized
See notes to financial statements
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Value Portfolio (the "Portfolio"),
a separate series of The Asset Allocation Portfolios (the "Portfolio Trust"), is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank N.A., ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator. On
November 1, 1997, the CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $16,913,632, $42,092,855, $81,236,129 and
$40,503,947 including $2,712,350, $7,246,592, $14,228,135 and $6,126,184,
respectively of unrealized appreciation, to the Portfolio in exchange for an
interest in the Portfolio.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services 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. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs such duties and receives such compensation
from Citibank as from time to time are agreed to by Citibank and SFG. Citibank
has delegated the daily management of the Portfolio to Franklin Advisory
Services, Inc. ("the Subadviser"). Citibank is a wholly owned subsidiary of
Citicorp. Citicorp recently announced its intention to merge with The Travelers
Group. Completion of the merger is subject to the satisfaction of certain
conditions.
The management fees paid to Citibank, amounted to $193,543 for the period
November 1, 1997 (Commencement of Operations) to April 30, 1998. Management fees
are computed at the annual rate of 0.75% of the Portfolio's average daily net
assets less the aggregate amount, if any, payable by the Portfolio pursuant to
the Sub-Management Agreement with the Subadviser. The Portfolio pays the
Subadviser the following fees, which are accrued daily and payable monthly and
are at the annual rates equal to the percentages of the aggregate assets of the
Portfolio allocated to the Subadviser: 0.55% on first $250 million and 0.50% on
remaining assets.
The management fees paid to the Subadviser amounted to $532,581 for the
period November 1, 1997 (Commencement of Operations) to April 30, 1998.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $70,683,982 and $23,879,792,
respectively, for the period November 1, 1997 (Commencement of Operations) to
April 30, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at April 30, 1998, as
computed on a federal income tax basis, are as follows:
Aggregate cost $210,661,984
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 46,745,403
Gross unrealized depreciation (9,385,827)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 37,359,576
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with the other CitiFunds 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 period
November 1, 1997 (Commencement of Operations) to April 30, 1998, the commitment
fee allocated to the Portfolio was $110. Since the line of credit was
established, there have been no borrowings.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Sub-Administrator and Distributor
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
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
Price Waterhouse 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 Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut 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.
(C)1998 Citicorp [LOGO] Printed on recycled paper CFS/SCV/498
<PAGE>
Semi-Annual Report o April 30, 1998
[LOGO]
Growth & Income Portfolio
LARGE CAP STOCKS
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
...............................................................................
Portfolio Environment and Outlook 2
...............................................................................
Fund Facts 3
...............................................................................
Portfolio Highlights 4
...............................................................................
Fund Performance 5
...............................................................................
CITIFUNDS GROWTH & INCOME PORTFOLIO
Statement of Assets and Liabilities 6
...............................................................................
Statement of Operations 7
...............................................................................
Statement of Changes in Net Assets 8
...............................................................................
Financial Highlights 9
...............................................................................
Notes to Financial Statements 10
...............................................................................
GROWTH & INCOME PORTFOLIO
Portfolio of Investments 13
...............................................................................
Statement of Assets and Liabilities 15
...............................................................................
Statement of Operations 15
...............................................................................
Statement of Changes in Net Assets 16
...............................................................................
Financial Highlights 16
...............................................................................
Notes to Financial Statements 17
...............................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from March 2, 1998 (Commencement of
Operations), through April 30, 1998, for the CitiFundsSM Growth & Income
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.
Overall, the past several months were quite positive for established,
large-capitalization stocks in the United States. Despite setbacks in the
aftermath of the Asian financial crisis during the fourth quarter of 1997, U.S.
stocks rebounded strongly in the first four months of 1998. We are pleased to
report that CitiFunds Growth & Income Portfolio participated in a portion of
this market sector's gains since its inception on March 2, 1998.
As you have probably heard, Citicorp recently announced its intention to
merge with The Travelers Group. The completion of the merger is subject to the
satisfaction of certain conditions. As necessary, we will provide you with
information that specifically affects the Fund.
On behalf of the Board of Trustees, we want to thank you for your
participation and confidence in the CitiFunds family of funds.
/S/ Philip W. Coolidge
Philip W. Coolidge
President
May 16, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
The Asian crisis created turmoil in the U.S. stock market during the last few
months of 1997. Stock prices fell sharply when investors became concerned that
Asia's financial problems would slow U.S. economic growth. Reduced demand for
goods imported from the U.S., together with the beneficial effects of currency
devaluations on Asian exports, were expected to erode sales and profits for many
large U.S. companies, especially those with significant exposure to Asian
markets.
As of April 30, 1998, this scenario has not yet materialized. U.S. economic
growth remained strong during the first four months of 1998, and investors
seemed to disregard their earlier concerns about the Asian crisis. U.S. stocks
resumed their longstanding rally between January and April, driven higher by
undiminished demand for financial assets from individuals, institutions and
retirement plans. Low interest rates and low inflation attracted investments
from bonds and money market funds to stocks and equity mutual funds.
More specifically, large-capitalization stocks continued to lead the U.S.
market's advance over the past six months, as they have for the past several
years. Investors have preferred large growth companies because of the ready
liquidity of their shares, as well as these companies' demonstrated ability to
grow earnings consistently.
The Growth & Income Portfolio maintained its value-oriented approach in this
environment, focusing on large, established companies. Our highly disciplined
investment approach seeks companies priced below the discounted value of their
future cash flows. As value managers, we look for companies with good longer
term prospects, but whose stocks are selling at valuations substantially lower
than broader market averages. Such stocks may be companies whose potential has
not yet been recognized by analysts and investors; they may be relatively well
known companies experiencing temporary problems; or they may be in an industry
that is subject to temporarily unfavorable economic conditions. Our strategy is
to buy these stocks when they are inexpensively priced and hold them until their
true values are reached.
The Portfolio particularly benefitted since inception from its holdings in
certain sectors of the stock market. For example, financial companies such as
asset management and brokerage firms profited from heightened investment
activity, a product of the healthy U.S. economy. Similarly, some automobile
component manufacturers performed well as investors finally recognized, as we
did earlier, that Wall Street analysts had underestimated their earnings.
Since the Portfolio began operations, we have found attractive values in
certain oil services and drilling companies, whose stock prices have languished
because of the low current price of oil. We've also found good values in the
stocks of certain paper companies, which we believe were unduly punished by
investors last year because of concern about the Asian slow-down's effect on the
worldwide economy.
The Portfolio has tended to avoid stocks in the consumer staples sector of
the stock market, which includes companies that manufacture and sell food,
beverages, household items and personal hygiene products. Many of the growth
companies in this area are well managed and profitable, and they have led the
market's advance. However, their recent performance has increased their
valuations to a level that we regard as too expensive.
In our view, maintaining a value-oriented discipline does more than help us
find potentially profitable investments. We believe that the value approach also
helps us manage the risks of the U.S. stock market. In addition, we manage risks
through diversification. On average, the Portfolio contains between 50 and 60
stocks representing a wide variety of industries.
Looking forward, we expect the U.S. economy to remain sound, if not vibrant.
Moderate economic growth and low inflation should persist as long as the
underlying fundamentals remain in place. We expect long-term interest rates to
decline modestly in this environment, further reducing many companies' borrowing
costs.
However, we are cautious with regard to the sustainability of the stock
market's rally. Because corporate earnings are growing more slowly at the same
time that valuations are rising, we do not expect the U.S. stock market to
repeat its stellar performance of the last few years. Rather, we expect the
domestic market to consolidate its gains. In fact, we would not be surprised to
see temporary corrections over the next several months in those stocks and
market sectors that have advanced most. We believe that our focus on
attractively valued, dividend-paying stocks will help us cushion the effects of
a temporary market decline.
We are more optimistic over the longer term. The influences that may slow the
growth of corporate earnings in 1998 are probably temporary, and growth should
re-accelerate early next year. In our view, investors with a long-term
perspective will continue to enjoy the rewards provided by U.S. stocks.
FUND FACTS
FUND OBJECTIVE
Long-term capital growth and current income.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid quarterly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
March 2, 1998 Distributed annually, if any
NET ASSETS AS OF 4/30/98 BENCHMARKS
$77.7 million o Standard & Poor's Barra Value Index
o Lipper Growth & Income
Funds Average
<PAGE>
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS AS OF APRIL 30, 1998 (UNAUDITED)
COMPANY, INDUSTRY % OF PORTFOLIO
McDonald's Corp., Consumer Services 3.60%
...............................................................................
Chase Manhattan Bank Corp., Finance 3.42%
...............................................................................
American Telephone & Telegraph Corp., Utilities 3.10%
...............................................................................
Lehman Brothers Holdings Inc., Finance 2.88%
...............................................................................
Nationsbank Corp., Finance 2.88%
...............................................................................
Exxon Corp., Energy 2.67%
...............................................................................
Royal Dutch Petroleum Corp., Energy 2.66%
...............................................................................
Everest Reinsurance Holdings, Finance 2.62%
...............................................................................
J.P. Morgan & Co. Inc., Finance 2.61%
...............................................................................
E I du Pont de Nemours & Co., Basic Industries 2.59%
...............................................................................
PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1998 (Unaudited)
Financial 24%
Utilities 12%
Energy 11%
Consumer 10%
Basic Industries 10%
Technology 10%
Short Term 5%
Healthcare Services 4%
Retail 4%
Capital Goods 4%
Transportation 1%
Industrial Services 1%
*Includes cash and net other assets.
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
FOR THE PERIOD MARCH 2, 1998 SINCE
(COMMENCEMENT OF OPERATIONS) 3/2/98
TO APRIL 30, 1998 (Unaudited) (INCEPTION)*
- --------------------------------------------------------------------------------
CitiFunds Growth & Income Portfolio 5.10%
Lipper Growth & Income Funds Average 5.13%+
S&P Barra Value Index 6.31%+
* Not Annualized
+ From 2/28/98
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$10,510 (as of 4/30/98). The graph shows how the Fund compares to its benchmarks
over the same period.
CitiFunds Lipper Growth & S&P 500 Barra
Growth & Income Income Funds Value Index
Portfolio Average (unmanaged)
3/2/98 $10,000.00 $10,000.00 $10,000.00
3/31/98 10,480.00 10,441.00 10,507.00
4/30/98 10,510.00 10,513.04 10,630.98
The graph assumes all dividends and distributions from the Fund are reinvested
at Net Asset Value.
Notes: 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 and reflect certain voluntary fee waivers
which may be terminated at anytime. If the waivers were not in place, the Fund's
returns would have been lower.
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investment in Growth & Income Portfolio, at value (Note 1A) $75,347,714
Receivable for shares of beneficial interest sold 2,588,143
- --------------------------------------------------------------------------------
Total assets 77,935,857
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 211,099
Payable to affiliates--Management fees (Note 2) 9,667
Accrued expenses and other liabilities 38,273
- --------------------------------------------------------------------------------
Total liabilities 259,039
- --------------------------------------------------------------------------------
NET ASSETS for 7,393,773 shares of beneficial interest
outstanding $77,676,818
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $75,434,735
Unrealized appreciation 1,921,712
Accumulated net realized gain 253,020
Undistributed net investment income 67,351
- --------------------------------------------------------------------------------
Total $77,676,818
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $10.51
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B):
Dividend Income from Growth & Income Portfolio $119,866
Interest Income from Growth & Income Portfolio 67,988
Allocated Expenses from Growth & Income Portfolio (62,566)
- --------------------------------------------------------------------------------
$125,288
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 24,167
Printing fees 13,669
Management fees (Note 2) 9,667
Audit fees 5,200
Custody and Fund Accounting fees 2,000
Legal fees 1,500
Trustees fees 734
Miscellaneous fees 1,000
- --------------------------------------------------------------------------------
Total expenses 57,937
- --------------------------------------------------------------------------------
Net investment income 67,351
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM
GROWTH & INCOME PORTFOLIO:
Net realized gain 253,020
Net change in unrealized appreciation 1,921,712
- --------------------------------------------------------------------------------
Net realized and unrealized gain from
Growth & Income Portfolio 2,174,732
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,242,083
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 67,351
Net realized gain 253,020
Net change in unrealized appreciation 1,921,712
- -------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,242,083
- -------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(NOTE 5):
Net proceeds from sale of shares 79,388,258
Net asset value of shares issued to shareholders
from reinvestment of distributions --
Cost of shares repurchased (3,953,523)
- -------------------------------------------------------------------------------
Net increase in net assets
from transactions in shares of
beneficial interest 75,434,735
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 77,676,818
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- -------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $67,351) $77,676,818
- -------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Net Asset Value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) 0.009
Net realized and unrealized gain (loss) on investments 0.501
- --------------------------------------------------------------------------------
Total from operations 0.510
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total distributions --
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.51
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $77,677
Ratio of expenses to average net assets (A) 1.30%*
Ratio of net investment income to average net assets 0.73%*
Total return 5.10%
Note: If Agents of the Fund and Agents of Growth & Income Portfolio for the
periods indicated had not voluntarily waived a portion of their fees, the net
investment income (loss) per share and the ratios would have been as follows:
Net investment income per share $ 0.001
RATIOS:
Expenses to average net assets (A) 2.00%*
Net investment income (loss) to average net assets 0.03%*
- --------------------------------------------------------------------------------
* Annualized.
(A) Includes the Fund's share of Growth & Income Portfolio allocated expenses
for the periods indicated.
+ Not Annualized.
See notes to financial statements
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Growth & Income Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (the "Trust"), a
Massachusetts business trust. The Fund commenced operations on March 2, 1998.
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 Growth & Income Portfolio (the "Portfolio"), a management
investment company for which Citibank, N.A. ("Citibank") serves as Investment
Manager. CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Trust seeks to achieve the Fund's investment objective of long-term
capital growth and current income by investing all of its investable assets in
the Portfolio, an open-end, diversified management investment company having the
same investment objective and policies and substantially the same investment
restrictions as the Fund. The value of such investment reflects the Fund's
proportionate interest (approximately 99.9% at April 30, 1998) in the net assets
of the Portfolio.
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 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 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 differ 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. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
Citicorp. Citicorp recently announced its intentions to merge with The Travelers
Group. Completion of the merger is subject to the satisfaction of certain
conditions.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.10% of the Fund's average
daily net assets. The management fee amounted to $9,667 for the period March 2,
1998 (Commencement of Operations) to April 30, 1998.
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. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, in which the Fund pays
fees for distribution, sales and marketing and shareholder services at an annual
rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $24,167 for the period March 2, 1998 (Commencement
of Operations) to April 30, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the period aggregated $73,466,368 and $418,674, 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:
FOR THE PERIOD MARCH 2, 1998, (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares sold 7,773,053
Shares issued to shareholders from reinvestment of
distributions --
Shares repurchased (379,280)
- --------------------------------------------------------------------------------
Net increase 7,393,773
- --------------------------------------------------------------------------------
<PAGE>
Growth & Income Portfolio
PORTFOLIO OF INVESTMENTS April 30, 1998
(Unaudited)
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 95.3%
- --------------------------------------------------------------------------------
BASIC INDUSTRIES -- 10.2%
- --------------------------------------------------------------------------------
Barrick Gold Corp. 47,400 $ 1,063,537
Crown Cork & Seal Inc. 15,500 806,969
EI du Pont de Nemours & Co. 47,400 1,951,375
Martin Marietta Materials Inc. 31,600 1,483,225
Mead Corp. 33,600 1,163,400
Weyerhauser Co. 21,100 1,215,888
-----------
7,684,394
-----------
CAPITAL GOODS -- 4.0%
- --------------------------------------------------------------------------------
Deere & Co. 28,400 1,659,625
Parker Hannifin Corp. 29,600 1,320,900
-----------
2,980,525
-----------
CONSUMER DURABLE -- 5.1%
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber 26,800 1,876,000
Lucasvarity PLC 24,425 1,099,125
Meritor Automotive Inc. 33,300 859,556
-----------
3,834,681
-----------
CONSUMER SERVICES -- 4.6%
- --------------------------------------------------------------------------------
McDonalds Corp. 43,800 2,710,125
Tricon Global
Restaurants Inc.* 24,700 784,225
-----------
3,494,350
-----------
ENERGY -- 17.1%
- --------------------------------------------------------------------------------
Amerada Hess Corp. 18,800 1,081,000
Burlington Resources Inc. 37,300 1,753,100
Diamond Offshore Drilling Inc. 14,500 734,063
Exxon Corp. 27,600 2,013,075
Halliburton Co. 30,200 1,661,000
Mobil Corp. 24,700 1,951,300
Royal Dutch Petroleum Corp. 35,400 2,002,312
Santa Fe International Corp. 43,700 1,712,494
-----------
12,908,344
-----------
FINANCE -- 24.4%
- --------------------------------------------------------------------------------
Bankers Trust Corp. 10,100 1,304,162
Chase Manhattan Bank Corp. 18,600 2,577,263
Everest Reinsurance Holdings 47,800 1,971,750
Franklin Resources Inc. 18,300 979,050
J.P. Morgan & Co. Inc. 15,000 1,968,750
Lehman Brothers Holdings Inc. 30,500 2,167,406
Nationsbank Corp. 28,600 2,166,450
Safeco Corp. 32,100 1,602,994
Travelers Group Inc. 21,000 1,284,938
Washington Mutual Inc. 14,600 1,022,912
Wells Fargo 3,700 1,363,450
-----------
18,409,125
-----------
HEALTHCARE SERVICES -- 4.5%
- --------------------------------------------------------------------------------
American Home Products Corp. 15,500 1,443,438
Oxford Health Plans* 48,300 827,137
Wellpoint Health Networks Inc.* 15,500 1,117,938
-----------
3,388,513
-----------
INDUSTRIAL SERVICES -- 1.1%
- --------------------------------------------------------------------------------
U.S.A. Waste Services Inc. 17,300 848,781
-----------
RETAIL -- 3.7%
- --------------------------------------------------------------------------------
Federated Department Stores Inc.* 13,800 678,787
Premark International Inc. 14,600 487,275
Sears Roebuck & Co. 15,700 931,206
Toys "R" Us Inc.* 25,900 713,869
-----------
2,811,137
-----------
TECHNOLOGY -- 7.6%
- --------------------------------------------------------------------------------
Compaq Computer Corp. 25,900 726,819
Hewlett Packard Co. 10,000 753,125
International Business Machines 3,100 359,212
Intel Corp. 9,900 800,044
Raytheon Corp. 29,500 1,672,281
Sun Microsystems Inc. 34,200 1,408,613
-----------
5,720,094
-----------
TRANSPORTATION -- 1.2%
- --------------------------------------------------------------------------------
Union Pacific Corp. 16,500 903,375
-----------
UTILITIES -- 11.8%
- --------------------------------------------------------------------------------
American Electric Power Inc. 17,300 826,075
American Telephone & Telegraph Corp. 38,900 2,336,431
Bell Atlantic Corp. 18,700 1,749,619
Bellsouth Corp. 21,000 1,347,937
Cinergy Corp. 26,600 927,675
Entergy Corp. 30,300 753,713
Houston Industries Inc. 32,200 935,812
-----------
8,877,262
-----------
TOTAL COMMON STOCKS 71,860,581
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 4.6%
- --------------------------------------------------------------------------------
Sanwa Repurchase Agreement 5.43% due 5/01/98
proceeds at maturity $3,461,522
(collateralized by $3,409,000 U.S. Treasury
Note, 6.50% due 8/01/01, valued
at $3,533,086) 3,461,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Identified Cost $73,399,869) 99.9% 75,321,581
OTHER ASSETS,
LESS LIABILITIES 0.1 26,233
----- -----------
NET ASSETS 100.0% $75,347,814
===== ===========
* Non income producing securities
See notes to financial statements
<PAGE>
GROWTH & INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $73,399,869) $75,321,581
Cash 920
Dividends and interest receivable 87,879
- --------------------------------------------------------------------------------
Total assets 75,410,380
- --------------------------------------------------------------------------------
LIABILITIES:
Accrued expenses and other liabilities 62,566
- --------------------------------------------------------------------------------
NET ASSETS $75,347,814
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $75,347,814
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $119,866
Interest income 67,988
- --------------------------------------------------------------------------------
Total investment income $ 187,854
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 58,492
Custody and Fund Accounting fees 41,178
Audit fees 13,750
Legal fees 5,000
Trustees fees 1,333
Miscellaneous 1,305
- --------------------------------------------------------------------------------
Total expenses 121,058
Less aggregate amounts waived by Investment Adviser (58,492)
- --------------------------------------------------------------------------------
Net expense 62,566
- --------------------------------------------------------------------------------
Net investment income 125,288
- --------------------------------------------------------------------------------
Net realized gain from investment transaction 253,020
Net change in unrealized appreciation of investment 1,921,712
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investment 2,174,732
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,300,020
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
GROWTH & INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 125,288
Net realized gain on investment transactions 253,020
Net change in unrealized appreciation of investments 1,921,712
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,300,020
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 73,466,468
Value of withdrawals (418,674)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 73,047,794
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 75,347,814
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $75,347,814
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $75,348
Ratio of expenses to average net assets 0.75%*
Ratio of net investment income to average net assets 1.50%*
Portfolio turnover 8%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their
fees during the periods indicated, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 1.45%*
Net investment income to average net assets 0.80%*
- --------------------------------------------------------------------------------
* Annualized
See notes to financial statements
<PAGE>
GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Growth & Income 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 Portfolio commenced
operations on March 2, 1998. The Declaration of Trust permits the Trustees to
issue beneficial interests in the Portfolio. The Investment Manager of the
Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand
Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations 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 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.
E. 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.
F. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs such duties and receives such compensation
from Citibank as from time to time are agreed to by Citibank and SFG. Citibank
is a wholly-owned subsidiary of Citicorp. Citicorp recently announced its
intention to merge with The Travelers Group. Completion of the merger is subject
to the satisfaction of certain conditions.
The management fees paid to Citibank, amounted to $58,492, all of which was
voluntarily waived for the period March 2, 1998 (Commencement of Operations) to
April 30, 1998. The management fees are computed at the annual rate of 0.70% of
the Portfolio's average daily net assets. 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 $74,350,203 and $4,664,354,
respectively, for the period March 2, 1998 (Commencement of Operations) to April
30, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at April 30, 1998, as
computed on a federal income tax basis, are as follows:
Aggregate cost $73,399,869
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 2,812,280
Gross unrealized depreciation (890,568)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 1,921,712
- --------------------------------------------------------------------------------
5. LINE OF CREDIT The Portfolio, along with other CitiFunds, 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 period
March 2, 1998 (Commencement of Operations) to April 30, 1998, no commitment fee
was allocated to the Portfolio. Since the line of credit was established, there
have been no borrowings.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Sub-Administrator and Distributor
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street,
New York, NY 10043
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
Price Waterhouse 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 Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut 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.
(C)1998 Citicorp [LOGO] Printed on recycled paper CFS/GI/498
