------------------------------------------------------------------
SMITH BARNEY
DIVERSIFIED
LARGE CAP GROWTH FUND
------------------------------------------------------------------
ANNUAL REPORT | OCTOBER 31, 2000
[Logo omitted] Smith Barney
Mutual Funds
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
---------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
---------------------------------------------------------
<PAGE>
[Graphic Omitted] ANNUAL REPORT o OCTOBER 31, 2000
RICHARD GOLDMAN
PORTFOLIO MANAGER SMITH BARNEY DIVERSIFIED
LARGE CAP GROWTH FUND
RICHARD GOLDMAN
--------------------------------
Richard Goldman has more than 14
years experience in the industry
and has been managing the fund
since 1996.
Education: BS from Lehigh
University, MBA from New York
University
--------------------------------
FUND OBJECTIVE
--------------------------------
The fund seeks long-term capital
growth. Dividend income, if any,
is incidental to this goal.
--------------------------------
FUND FACTS
--------------------------------
FUND INCEPTION
------------------------------------
October 19, 1990
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
------------------------------------
14 Years
CLASS A CLASS B CLASS L
-------------------------------------------
NASDAQ CFLGX CLCBX --
-------------------------------------------
Inception 10/19/90 1/4/99 9/22/00
AVERAGE ANNUAL TOTAL RETURNS AS OF OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
----------------------------------------------------
One-Year 3.20% 2.47% --
----------------------------------------------------
Five-Year 19.21% -- --
----------------------------------------------------
Ten-Year 17.07% -- --
----------------------------------------------------
Since Inception+ 16.81% 5.08% (2.81)%*
----------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
----------------------------------------------------
One-Year (1.96)% (2.65)% --
----------------------------------------------------
Five-Year 17.99% -- --
----------------------------------------------------
Ten-Year 16.47% -- --
----------------------------------------------------
Since Inception+ 16.22% 2.75% (4.74)%*
----------------------------------------------------
(1)Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of all applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2)Assumes reinvestment of all dividends and capital gain distributions, if any
at net asset value. In addition, Class A and L shares reflect the deduction
of the maximum sales charge of 5.00% and 1.00%, respectively; and Class B
shares reflect the deduction of a 5.00% CDSC, which applies if shares are
redeemed within one year from initial purchase. Thereafter, this CDSC
declines by 1.00% per year until no CDSC is incurred. Class L shares also
reflect the deduction of 1.00% CDSC, which applies if shares are redeemed
within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+Inception dates for Class A, B and L shares are October 19,1990, January 4,
1999 and September 22, 2000, respectively.
* Not Annualized
--------------------------------------------------------------------------------
WHAT'S INSIDE
Letter from the President .............................1
Fund at a Glance ......................................2
Shareholder Letter ....................................3
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
Statement of Assets and Liabilities ...................5
Statement of Operations ...............................6
Statement of Changes in Net Assets ....................7
Financial Highlights ..................................8
Notes to Financial Statements ........................11
Independent Auditors' Report .........................14
LARGE CAP GROWTH PORTFOLIO
Portfolio of Investments .............................15
Statement of Assets and Liabilities ..................18
Statement of Operations ..............................19
Statement of Changes in Net Assets ...................20
Financial Highlights .................................21
Notes to Financial Statements ........................22
Independent Auditors' Report .........................24
[Logo Omitted] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed.(SM)
----------------------------------------------------------------------------
Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
----------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
LETTER FROM THE PRESIDENT
--------------------------------------------------------------------------------
The new millennium, so far, has been marked by historic levels of market
volatility and concerns that the bull market in stocks may be running out of
steam. We believe that a well-rounded investment plan including both stock and
bond funds managed by seasoned professionals may be a prudent way to realize
your financial objectives over time, especially with uncertain market
conditions.
The Smith Barney Diversified Large Cap Growth Fund, led by experienced portfolio
manager Richard Goldman, seeks long-term capital growth. Rich and his team use a
growth approach, emphasizing well-established companies with superior management
teams. Rich and his team look principally for issuers with long histories of
strong, relatively predictable earnings growth rates and the products and
strategies for continuing above-average growth.
Rich and his team continually seek to maintain their clients' confidence in
their investment approach. They are committed to their clients' investment
success and utilize the ultimate in resources in managing the Fund.
We thank you for your confidence in their investment management approach.
Sincerely,
/s/ HEATH B. McLENDON
---------------------
Heath B. McLendon
President
NOVEMBER 2, 2000
[Graphic Omitted]
-----------------
HEATH B. MCLENDON
PRESIDENT
-----------------
1 | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND AT A GLANCE
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF THE
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND CLASS A VS. BENCHMARKS
--------------------------------------------------------------------------------
GROWTH OF A
$10,000
INVESTMENT
A $10,000 investment in the Fund made ten years ago would have grown to $45,935
with sales charge (as of 10/31/00). The graph shows how the Fund compares to its
benchmarks over the same period.
[Table below represents line chart in its printed piece]
Class A Class B Class L
------- ------- -------
10/31/90 6000 10000 10000
11/30/90 10070 10660 10604
12/31/90 10163.1 11014 10941.2
1/31/91 10609.1 11690 11396.4
2/28/91 11395 12534 12279.6
3/31/91 11469.3 12938 12743.8
4/30/91 11225 12922 12719.5
5/31/91 11989.7 13456 13200.3
6/30/91 11310.6 12795 12648.6
7/31/91 11974.6 13430 13325.3
8/31/91 12649.4 13838 13754.3
9/30/91 12221 13712 13453.1
10/31/91 12499.5 13993 13617.2
11/30/91 11963.9 13435 13270
12/31/91 13286.7 14921 15139.8
1/31/92 13071.7 14997 14608.3
2/29/92 13394.2 15208 14694.5
3/31/92 13039.5 14755 14353.6
4/30/92 13093.2 14656 14505.8
5/31/92 13061 14738 14618.9
6/30/92 12644.6 14309 14316.3
7/31/92 13184 14821 14962
8/31/92 12817.2 14499 14789.9
9/30/92 13097.7 14724 14964.4
10/31/92 13432.2 15021 15188.9
11/30/92 14176.6 15769 15802.5
12/31/92 14296.4 16061 15906.8
1/31/93 14372 16259 15735
2/28/93 14166.7 16004 15607.6
3/31/93 14987.9 16447 15827.7
4/30/93 14750.2 15937 15098
5/31/93 15171.7 16516 15635.5
6/30/93 15023.8 16566 15502.6
7/31/93 14829.1 16526 15183.2
8/31/93 15499.7 17225 15737.4
9/30/93 15543 17401 15496.7
10/31/93 15759.3 17643 16073.1
11/30/93 15564.6 17297 16061.9
12/31/93 16049.5 17797 16174.3
1/31/94 16374.8 18322 16520.4
2/28/94 16114.6 18036 16224.7
3/31/94 15398.8 17187 15475.2
4/30/94 15680.8 17244 15544.8
5/31/94 15995.3 17310 15798.2
6/30/94 15536.2 16727 15461.7
7/31/94 16022.4 17169 15954.9
8/31/94 16420.2 17955 16806.9
9/30/94 16000.3 17632 16566.6
10/31/94 16298.7 17911 16952.6
11/30/94 15757.2 17239 16396.5
12/31/94 15984.4 17398 16680.2
1/31/95 16086.3 17520 17093.8
2/28/95 16651.9 18173 17760.5
3/31/95 17059.1 18678 18318.2
4/30/95 17240.1 19061 18794.4
5/31/95 17794.4 19616 19467.3
6/30/95 18076.2 20420 20212.9
7/31/95 18647.2 21372 20857.7
8/31/95 18464.5 21537 20788.8
9/30/95 19024 22157 21815.8
10/31/95 19081.1 21825 21990.3
11/30/95 20108.8 22585 22782
12/31/95 20387.9 22664 23039.4
1/31/96 20921.3 23149 23919.6
2/29/96 21051.7 23672 24137.2
3/31/96 21431 23883 24035.8
4/30/96 21596.9 24669 24504.5
5/31/96 21988.1 25323 25406.3
6/30/96 22230.6 24958 25723.9
7/31/96 20961.7 23475 24538
8/31/96 21524.3 24304 24901.2
9/30/96 22721.4 25682 26629.3
10/31/96 22733.4 25857 27207.2
11/30/96 24002.3 27398 29239.6
12/31/96 23210 27001 28564.1
1/31/97 24583.5 28381 30800.7
2/28/97 24418.2 27969 31059.4
3/31/97 23133.7 26646 29584.7
4/30/97 25105 27637 31972.2
5/31/97 26351.3 29682 33868.2
6/30/97 27640.5 30851 35585.3
7/31/97 29573.6 33446 38403.6
8/31/97 27586.8 32336 35849.8
9/30/97 28875.5 34134 37678.1
10/31/97 28378.8 32840 36544
11/30/97 30016.6 33392 38528.4
12/31/97 30493.3 33709 39002.3
1/31/98 31248.1 33867 40312.8
2/28/98 33445.4 36421 43113.7
3/31/98 35055.6 38024 45342.7
4/30/98 35089.1 38476 45723.5
5/31/98 34183.4 37349 44804.5
6/30/98 36967.7 38705 47994.6
7/31/98 36481.3 37807 47965.8
8/31/98 31751.3 31614 41725.4
9/30/98 34116.3 33489 44516.9
10/31/98 36011.7 35860 48247.4
11/30/98 38058 38037 51515.6
12/31/98 41832.7 41031 55433.9
1/31/99 43673.7 42709 58819.3
2/28/99 41577.5 40971 56511.8
3/31/99 43509.6 42766 59249.2
4/30/99 42051.4 44002 59134.3
5/31/99 40574.9 43192 57410.5
6/30/99 43691.9 45784 61519.4
7/31/99 42142.5 44584 59572.9
8/31/99 42634.7 44152 60399.2
9/30/99 42361.3 43410 59371.2
10/31/99 44512.1 45941 63476.7
11/30/99 45842.8 47935 66192.3
12/31/99 49018.8 52436 71092.5
1/31/00 45791.4 50396 66356.3
2/29/00 45770.4 52825 67749.1
3/31/00 50276.2 56127 74014.6
4/30/00 48012.8 53674 70350.8
5/31/00 45875.2 51570 67482.6
6/30/00 49079.3 54236 72927.8
7/31/00 48198.8 53287 69681.1
8/31/00 51406.4 57673 73717
9/30/00 47087.6 54766 66520.7
10/31/00 45934.5 53150 64790.5
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the indices) and 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 "with sales charge" 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. The maximum sales charge
of 5.00% went into effect on January 4, 1999. Investors may not invest directly
in an index.
--------------------------------------------------------------
Top Ten Equity Holdings*
--------------------------------------------------------------
--------------------------------------------------------------
1. General Electric Co. ............................. 8.76%
2. Cisco Systems Inc. ............................... 5.85
3. Pfizer Inc. ...................................... 5.20
4. Microsoft Corp. .................................. 4.91
5. Intel Corp. ...................................... 4.88
6. Wal-Mart Stores Inc. ............................. 3.56
7. EMC Corp. ........................................ 3.17
8. Oracle Corp. ..................................... 3.10
9. Sun Microsystems Inc. ............................ 3.09
10. Merck & Co Inc. .................................. 2.99
--------------------------------------------------------------
* As a percentage of total investments.
-----------------------------------------------------------------
PORTFOLIO BREAKDOWN
-----------------------------------------------------------------
[Table below represents pie chart in its printed piece]
Finance 8%
Consumer Non-Non-Durable 4%
Computer Software 11%
Computer & Telecommunication
Equipment 22%
Consumer Services 1%
Commercial Services 4%
Retail 8%
**Short-Term 3%
Capital Goods/Producer
Manufacturer 1%
Healthcare 20%
Semi-Conductors 9%
Conglomerates 9%
** Includes cash and net other assets
2 | 2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Diversified Large Cap Growth
Fund ("Fund") for the year ended October 31, 2000. In this report we have
summarized the period's prevailing economic and market conditions and outlined
our investment strategy. A detailed summary of the Fund's performance can be
found in the appropriate sections that follow. We hope you find this report to
be useful and informative.
PERFORMANCE UPDATE
For the year ended October 31, 2000, the Fund's Class A shares, without and with
sales charges, returned 3.20% and negative 1.96%, respectively. In comparison,
the Standard & Poor's Barra Growth Index ("S&P Barra Growth")1 returned 2.07%
for the same time period. (Past performance is not indicative of future
results.)
INVESTMENT STRATEGY
The Fund seeks long-term capital growth by investing primarily in equity
securities of U.S. large cap issuers that, at the time of purchase, have market
capitalizations within the top 1,000 stocks of the equity market. We use a
growth approach in our management of the Fund, emphasizing well-established
companies with superior management teams as proven by their successful financial
track records. We look principally for companies with seasoned management teams
and histories of strong, relatively predictable earnings growth rates that offer
products or services coupled with a strong business model that we believe has
the potential for continued above-average growth.
We generally seek companies that build earnings year after year because we
believe that growth in earnings, over the long-term, drives stock prices.
We use a disciplined investment process supported by extensive research
capabilities to identify those companies we believe have long-term growth
potential. We rely on the largest 1,000 U.S. stocks as our primary investment
universe, screening those companies for what we deem to be superior growth
potential characteristics. Each company that we consider for investment must
initially pass explicit criteria.
We specifically analyze companies' revenue and earnings growth rates to uncover
those that meet the threshold we require to be classified as growth companies.
We then further reduce the investment candidates by identifying which companies
may be high quality growth companies. This step includes analyzing a company's
return on equity, earnings consistency and debt to total equity levels.
Our analysis of these factors generally reduces the number of large companies
that we will consider investing in down to 125 to 200 companies. At this stage,
we turn our attention to the future. Our investment team works with our
extensive equity research team of over 100 equity analysts to identify companies
that we believe are best positioned to achieve above average earnings growth
going forward. Our research team analyzes company and industry trends to
identify those companies that are best positioned to increase sales, market
share, profit margins and profitability.
Our process is continuous. We make daily judgments as to the continued success
of companies we invest in and their current prospects in the stock market.
Through this disciplined yet flexible process and extensive research capability,
we seek to bring our investors a portfolio of large cap, high quality, growth
companies.
PORTFOLIO UPDATE
During the third quarter of 2000, evidence of slowing in the U.S. economy
continued to surface. Retail, auto and housing sales moderated from the levels
seen earlier in the year. The most notable reaction to this slowdown so far in
2000 was the
---------------
1 THE S&P BARRA GROWTH IS A CAPITALIZATION-WEIGHTED INDEX COMPOSED OF STOCKS OF
THE S&P 500 WITH LOWER BOOK-TO-PRICE RATIOS RELATIVE TO THE S&P 500 AS A
WHOLE.
3 | 2000 Annual Report to Shareholders
<PAGE>
performance of the technology sector. After posting historic gains in 1999, the
technology sector, as measured by the Nasdaq Composite Index ("Nasdaq"),2
rapidly declined in April and May and then again in September and October as
many investors refocused their attention on companies they believed had the
ability to generate earnings.
The performance of several industry sectors--not including technology--improved
during the period. Shares of certain retail companies performed well and
pharmaceutical stocks offered good returns relative to the market, bolstered by
investor enthusiasm for a number of promising drugs in development.
We believe that our stock selection contributed positively to performance, while
the Fund's underweight in the consumer staples sector negatively impacted
performance. During the period, we reduced the Fund's position in financial
stocks American Express and MBNA Corporation to take profits as these two
companies experienced what we deemed were exceptional gains. The assets from
these two sales were generally reallocated to two other financial stocks, Fannie
Mae and Freddie Mac. In addition, we also initiated a position in Coca-Cola
during the period. As of October 31, 2000, the Fund's top five holdings were
General Electric Co., Cisco Systems Inc., Pfizer Inc., Microsoft Corp. and Intel
Corp.
Despite the recent pressure in technology stocks, we remain convinced that
tremendous business opportunities exist there. We look to invest in what we deem
to be high-quality companies in the many industries that comprise this sector
such as telecommunications, semiconductors and computer hardware. Additionally,
we suspect that going forward, most investors will remain more focused on
company fundamentals, looking to identify and own those companies with solid
long-term plans.
MARKET OUTLOOK
We continue to anticipate a strong, well-balanced U.S. economy over the near
term, and we believe that Gross Domestic Product ("GDP")3 growth may exceed 5%
for the year. In our view, growth may continue to be driven by technology
advances and productivity gains, as business investment and consumer spending
remain the primary growth engines. With consumer fundamentals pointing toward
softer growth ahead, we anticipate continued moderation in the consumer sector
in the second half of this year.
High mortgage interest rates, slowing job growth, higher energy prices, and a
near-zero personal savings rate--coupled with rising credit card usage and
slowing income growth--point toward slowing consumer spending. We believe that
the Fed has completed its current round of tightening and its policies may be on
hold for the foreseeable future. (Of course, no guarantees can be given that our
expectations will be met.)
Thank you for your investment in the Smith Barney Diversified Large Cap Growth
Fund and your continued confidence in our investment approach.
Sincerely,
/s/ RICHARD GOLDMAN
-------------------
Richard Goldman
NOVEMBER 2, 2000
--------------
THE INFORMATION PROVIDED IN THIS LETTER REPRESENTS THE OPINION OF THE MANAGERS
AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS NOR INVESTMENT ADVICE.
FURTHER, THERE IS NO ASSURANCE THAT CERTAIN SECURITIES WILL REMAIN IN THE FUND.
2 THE NASDAQ IS A MARKET VALUE-WEIGHTED INDEX THAT MEASURES ALL DOMESTIC AND
NON-U.S. BASED SECURITIES LISTED ON THE NASDAQ STOCK MARKET.
3 GDP IS THE MARKET VALUE OF THE GOODS AND SERVICES PRODUCED BY LABOR AND
PROPERTY IN THE U.S. GDP IS COMPRISED OF CONSUMER AND GOVERNMENT PURCHASES,
PRIVATE DOMESTIC INVESTMENTS AND NET EXPORTS OF GOODS AND SERVICES.
4 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS:
Investment in Large Cap Growth Portfolio, at
value (Note 1A) $ 446,090,670
Receivable for shares of beneficial interest sold 46,033
--------------------------------------------------------------------------------
TOTAL ASSETS 446,136,703
--------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 311,778
Payable to affiliates-- Management fees (Note 2) 8,324
Accrued expenses and other liabilities 276,422
--------------------------------------------------------------------------------
TOTAL LIABILITIES 596,524
--------------------------------------------------------------------------------
NET ASSETS $445,540,179
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $324,328,755
Unrealized appreciation 76,941,057
Undistributed net realized gain 44,270,367
--------------------------------------------------------------------------------
TOTAL $445,540,179
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($421,307,444/19,226,464
shares outstanding) $21.91
Offering Price per share ($21.91 / 0.95) $23.06*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($24,193,517/1,119,526 shares outstanding) $21.61**
================================================================================
CLASS L SHARES:
Net Asset Value per share and offering price
($39,218/1,742 shares outstanding) $22.51
Offering Price per share ($22.51 / 0.99) $22.74
================================================================================
* BASED UPON SINGLE PURCHASES OF LESS THAN $25,000.
** REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY APPLICABLE
CONTINGENT DEFERRED SALES CHARGES.
SEE NOTES TO FINANCIAL STATEMENTS.
5 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME (NOTE 1B):
Dividend Income from Large Cap Growth Portfolio $ 2,778,494
Interest Income from Large Cap Growth Portfolio 894,387
Allocated Expenses from Large Cap Growth Portfolio (3,235,928)
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 436,953
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,536,026
Service fees Class A (Note 3) 1,210,672
Service fees Class B (Note 3) 277,371
Service fees Class L (Note 3) 29
Transfer agent fees 236,212
Shareholder reports 77,968
Legal fees 54,066
Custody and fund accounting fees 38,214
Registration fees 26,625
Trustees fees 23,057
Audit fees 22,220
Other 57,605
--------------------------------------------------------------------------------
TOTAL EXPENSES 3,560,065
Less: aggregate amount waived by the Manager (Note 2) (1,212,595)
--------------------------------------------------------------------------------
NET EXPENSES 2,347,470
--------------------------------------------------------------------------------
NET INVESTMENT LOSS (1,910,517)
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM LARGE
CAP GROWTH PORTFOLIO:
Net realized gain 44,457,499
Unrealized depreciation (20,930,495)
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM LARGE CAP GROWTH PORTFOLIO 23,527,004
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,616,487
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000 2000 1999
===============================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (1,910,517) $ (1,917,877)
Net realized gain 44,457,499 93,539,988
Unrealized appreciation (depreciation) (20,930,495) 4,631,674
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 21,616,487 96,253,785
-------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain Class A (70,216,424) (35,754,369)
Net realized gain Class B (3,966,602) --
-------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (74,183,026) (35,754,369)
-------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 81,443,735 171,779,784
Net asset value of shares issued
to shareholders from
reinvestment of distributions 69,749,460 35,750,664
Cost of shares repurchased (194,322,536) (131,507,869)
-------------------------------------------------------------------------------
Total Class A (43,129,341) 76,022,579
-------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 2,959,203 31,598,337
Net asset value of shares issued
to shareholders from reinvestment
of distributions 3,686,555
Cost of shares repurchased (7,607,470) (4,342,786)
-------------------------------------------------------------------------------
Total Class B (961,712) 27,255,551
-------------------------------------------------------------------------------
CLASS L**
Net proceeds from sale of shares 40,024 --
Cost of shares repurchased -- --
-------------------------------------------------------------------------------
Total Class L 40,024 --
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (44,051,029) 103,278,130
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (96,617,568) 163,777,546
-------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 542,157,747 378,380,201
-------------------------------------------------------------------------------
END OF PERIOD $ 445,540,179 $ 542,157,747
===============================================================================
* JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS).
** SEPTEMBER 22, 2000 (COMMENCEMENT OF OPERATIONS).
SEE NOTES TO FINANCIAL STATEMENTS.
7 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, YEAR ENDED
YEAR ENDED OCTOBER 31, 1997 DECEMBER 31,
----------------------------- -------------------
CLASS A SHARES 2000 1999 1998 (NOTE 1F) 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $24.42 $21.47 $21.14 $18.25 $17.20 $14.13
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (loss) (0.084) (0.079)+ (0.022)+ 0.031 0.122 0.211
Net realized and unrealized gain 1.021 4.944 4.735 4.016 2.250 3.651
---------------------------------------------------------------------------------------------------------------------------------
Total From Operations 0.937 4.865 4.713 4.047 2.372 3.862
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- (0.012) (0.030) (0.118) (0.210)
Net realized gain (3.447) (1.915) (4.371) (1.127) (1.204) (0.582)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (3.447) (1.915) (4.383) (1.157) (1.322) (0.792)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $21.91 $24.42 $21.47 $21.14 $18.25 $17.20
=================================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $421,307 $513,883 $378,380 $248,161 $228,954 $213,729
Ratio of expenses to average net assets (A) 1.05% 1.05% 1.05% 1.05%* 1.05% 1.05%
Ratio of net investment income (loss)
to average net assets (0.33)% (0.34)% (0.11)% 0.18%* 0.67% 1.30%
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.20% 23.60% 26.90% 22.27%** 13.84% 27.55%
=================================================================================================================================
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 THE NET INVESTMENT INCOME (LOSS) PER SHARE AND THE RATIOS WOULD HAVE BEEN
AS FOLLOWS:
Net investment income (loss) per share $(0.143) $(0.131)+ $(0.078)+ $(0.023) $0.067 $0.170
RATIOS:
Expenses to average net assets (A) 1.29% 1.27% 1.32% 1.35%* 1.35% 1.30%
Net investment income (loss) to average net assets (0.57)% (0.56)% (0.38)% (0.12)%* 0.37% 1.05%
====================================================================================================================================
</TABLE>
* ANNUALIZED
** NOT 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 ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
JANUARY 4, 1999
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
CLASS B SHARES OCTOBER 31, 2000 OCTOBER 31, 1999
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 24.28 $ 22.73
--------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.248) (0.206)+
Net realized and unrealized gain 1.025 1.756
--------------------------------------------------------------------------------
Total From Operations 0.777 1.550
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
Net realized gain (3.447) --
--------------------------------------------------------------------------------
Total Distributions (3.447) --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 21.61 $ 24.28
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $24,194 $28,275
Ratio of expenses to average net assets (A) 1.80% 1.80%*
Ratio of net investment loss to average
net assets (1.08)% (1.13)%*
--------------------------------------------------------------------------------
TOTAL RETURN 2.47% 6.82%**
================================================================================
NOTE: IF AGENTS OF THE FUND FOR THE PERIODS INDICATED HAD NOT VOLUNTARILY WAIVED
A PORTION OF THEIR FEES THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD
HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.307) $(0.258)+
RATIOS:
Expenses to average net assets (A) 2.04% 2.02%*
Net investment loss to average net assets (1.32)% (1.35)%*
================================================================================
* 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 LARGE CAP GROWTH PORTFOLIO ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 22, 2000
(COMMENCEMENT
OF OPERATIONS)
CLASS L SHARES TO OCTOBER 31, 2000
================================================================================
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $23.16
--------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.022)+
Net realized and unrealized loss (0.628)
--------------------------------------------------------------------------------
Total From Operations (0.650)
================================================================================
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.51
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $39
Ratio of expenses to average net assets (A) 1.80%*
Ratio of net investment loss to average net assets (1.08)%*
--------------------------------------------------------------------------------
TOTAL RETURN (2.81)%**
================================================================================
NOTE: IF AGENTS OF THE FUND FOR THE PERIODS INDICATED HAD NOT VOLUNTARILY WAIVED
A PORTION OF THEIR FEES THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD
HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.027)+
RATIOS:
Expenses to average net assets (A) 2.04%*
Net investment loss to average net assets (1.32)%*
================================================================================
</TABLE>
* 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 LARGE CAP GROWTH PORTFOLIO ALLOCATED EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS.
10 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Diversified Large Cap Growth Fund (formerly CitiFunds Large 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 currently invests all of its investable assets in
Large Cap Growth Portfolio (the "Portfolio"), a management investment company
for which Citibank, N.A. ("Citibank") serves as Investment Manager. The value of
such investment reflects the Fund's proportionate interest (82.3% at October 31,
2000) in the net assets of the Portfolio. CFBDS, Inc ("CFBDS"), acted as the
Fund's Sub-Administrator through October 31, 2000. CFBDSacted as the Fund's
Distributor until August 31, 2000. Effective September 1, 2000 Salomon Smith
Barney Inc. became the Fund's Distributor.
The Fund offers Class A, Class B and Class L shares. Class A shares have a
front-end, or initial, sales charge. This sales charge may be reduced or
eliminated in certain circumstances. Class B shares have no front-end sales
charge, pay a higher ongoing distribution fee than Class A, and are subject to a
deferred sales charge if sold within five years of purchase. Class L shares have
a front-end, or initial, sales charge and are subject to a deferred sales charge
if sold within one year of purchase. Class B shares automatically convert into
Class A shares after eight years. Expenses of the Fund are borne pro-rata by the
holders of each class of shares, except that each class bears expenses unique to
that class (including the Rule 12b-1 service and distribution fees applicable to
such class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro-rata share of the net assets of the
Fund if the Fund were liquidated. Class A shares have lower expenses than Class
B shares. For the year ended October 31, 2000, the Distributor received $107,572
and $0 from sales of Class A and Class L shares, respectively, and $65,267 in
deferred sales charges from redemptions of Class B shares.
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. 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
11 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 year ended October 31, 2000, the Fund reclassified $1,910,517 to paid in
capital from accumulated net investment loss.
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 or an affiliate also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. Citibank is a wholly-owned subsidiary of Citigroup
Inc.
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 Fund's average
daily net assets. The management fee amounted to $1,536,026 of which $1,212,595
was voluntarily waived for the year ended October 31, 2000.
The Trust pays no compensation directly to any Trustee or any other officer who
is affiliated with the Manager, all of whom receive remuneration for their
services to the Trust from the Manager or its affiliates.
3. Service Fees
The Fund maintains separate Service Plans for Class A and Class B shares, which
have been adopted in accordance with Rule 12b-1 under the 1940 Act. Under the
Class A Service Plan, the Fund may pay monthly fees at an annual rate not to
exceed 0.25% of the average daily net assets represented by Class A shares of
the Fund. The Service fees for Class A shares amounted to $1,210,672 for the
year ended October 31, 2000. Under the Class B and Class L Service Plan, the
Fund may pay a combined monthly distribution and service fee at an annual rate
not to exceed 1.00% of the average daily net assets represented by Class B
shares and Class L shares of the Fund. The Distribution fees for Class B and
Class L shares amounted to $277,371 and $29, respectively, for the year ended
October 31, 2000. These fees may be used to make payments to the Distributor for
distribution services and to others as compensation for the sale of shares of
the applicable class of the Fund, for advertising, marketing or other
promotional activity, and for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. The Fund may also make payments
to the Distributor and others for providing personal service or the maintenance
of shareholder accounts.
4. Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for the year
ended October 31, 2000 aggregated $87,066,954 and $208,998,849, respectively.
12 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
5. Shares Of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares of beneficial interest were as follows:
YEAR ENDED OCTOBER 31,
--------------------------
2000 1999
================================================================================
CLASS A
Shares sold 3,484,190 7,419,389
Shares issued to shareholders from reinvestment
of distributions 3,037,623 1,619,142
Shares repurchased (8,340,808) (5,618,300)
-------------------------------------------------------------------------------
Class A net increase (decrease) (1,818,995) 3,420,231
================================================================================
CLASS B*
Shares sold 124,841 1,349,188
Shares issued to shareholders from reinvestment
of distributions 161,750 --
Shares repurchased (331,484) (184,769)
-------------------------------------------------------------------------------
Class B net increase (decrease) (44,893) 1,164,419
================================================================================
CLASS L**
Shares sold 1,742 --
Shares issued to shareholders from reinvestment
of distributions -- --
Shares repurchased -- --
-------------------------------------------------------------------------------
Class L net increase 1,742 --
================================================================================
* JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS)
** SEPTEMBER 22, 2000 (COMMENCEMENT OF OPERATIONS)
13 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II: SMITH BARNEY
DIVERSIFIED LARGE CAP GROWTH FUND (FORMERLY CITIFUNDS LARGE CAP GROWTH
PORTFOLIO):
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Smith Barney Diversified Large Cap Growth Fund (the "Fund"), a series of
CitiFunds Trust II, at October 31, 2000, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 2000
14 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 97.1%
CAPITAL GOODS/PRODUCER MANUFACTURER -- 0.4%
52,342 American Power Conversion Corp.+ $ 677,175
26,665 Illinois Tool Works Inc. 1,481,574
--------------------------------------------------------------------------------
2,158,749
--------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 10.8%
205,417 America Online Inc.+ 10,359,179
386,737 Microsoft Corp.+ 26,636,511
509,596 Oracle Corp.+ 16,816,668
32,600 Veritas Software Corp.+ 4,597,109
--------------------------------------------------------------------------------
58,409,467
--------------------------------------------------------------------------------
COMPUTER & TELECOMMUNICATIONS EQUIPMENT -- 22.2%
589,913 Cisco Systems Inc.+ 31,781,563
13,000 Comverse Technology Inc.+ 1,452,750
73,274 Corning Inc. 5,605,461
112,586 Dell Computer Corp.+ 3,321,287
193,268 EMC Corp.+ 17,212,931
139,843 International Business Machines Corp. 13,774,535
9,876 JDS Uniphase Corp.+ 804,277
26,215 Network Appliance Inc.+ 3,119,585
275,387 Nortel Networks Corp. 12,530,109
40,500 Qualcomm Inc.+ 2,636,930
114,000 Qwest Communications International Inc.+ 5,543,250
16,493 SDL Inc.+ 4,275,810
151,102 Sun Microsystems Inc.+ 16,753,434
34,071 Tellabs Inc.+ 1,701,421
--------------------------------------------------------------------------------
120,513,343
--------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
54,000 Automatic Data Processing Inc. 3,526,875
89,870 Concord EFS Inc.+ 3,712,754
48,392 Paychex Inc. 2,743,221
95,794 Time Warner Inc. 7,271,723
98,000 Viacom Inc.+ 5,573,750
--------------------------------------------------------------------------------
22,828,323
--------------------------------------------------------------------------------
CONGLOMERATES -- 8.8%
867,807 General Electric Co. 47,566,671
--------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 3.6%
212,331 Coca Cola Co. 12,819,484
134,314 PepsiCo Inc. 6,505,834
--------------------------------------------------------------------------------
19,325,318
--------------------------------------------------------------------------------
CONSUMER SERVICES -- 1.1%
58,267 Carnival Corp. 1,445,750
33,577 Expeditores International Wash Inc. 1,741,807
62,218 Harley Davidson Inc. 2,998,130
--------------------------------------------------------------------------------
6,185,687
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
15 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
FINANCE -- 8.5%
116,714 American Express Co. $7,002,840
70,216 Bank of New York Inc. 4,041,808
9,000 Bear Stearns Inc. 545,625
123,944 Charles Schwab Corp. 4,353,533
72,093 Federal Home Loan Mortgage Corp. 4,325,580
109,624 Federal National Mortgage Association 8,441,048
28,146 Marsh & McLennan Company Inc. 3,680,090
104,614 MBNA Corp. 3,929,563
85,684 Morgan Stanley Dean Witter & Co. 6,881,496
16,700 Northern Trust Corp. 1,425,763
13,826 State Street Corp. 1,724,655
--------------------------------------------------------------------------------
46,352,001
--------------------------------------------------------------------------------
HEALTHCARE -- 19.8%
134,311 Abbott Labs 7,093,300
94,805 Amgen Inc.+ 5,492,765
112,586 American Home Products Corp. 7,149,211
150,114 Bristol Myers Squibb Co. 9,147,572
24,000 Cardinal Health Inc. 2,274,000
79,007 Eli Lilly & Co. 7,061,251
60,000 Health Management Associates+ 1,188,750
119,677 Johnson & Johnson 11,025,244
106,463 Medtronic Inc. 5,782,272
180,727 Merck & Co Inc. 16,254,135
654,247 Pfizer Inc. 28,255,292
133,520 Schering-Plough Corp. 6,901,315
--------------------------------------------------------------------------------
107,625,107
--------------------------------------------------------------------------------
RETAIL -- 8.2%
118,711 Bed Bath & Beyond Inc.+ 3,064,228
69,134 Gap Inc. 1,784,521
199,987 Home Depot 8,599,441
57,279 Kohl's Corp.+ 3,103,806
188,628 WalGreen Co. 8,606,153
425,849 Wal-Mart Stores Inc. 19,322,898
--------------------------------------------------------------------------------
44,481,047
--------------------------------------------------------------------------------
SEMI-CONDUCTORS -- 9.5%
37,528 Altera Corp.+ 1,536,302
72,587 Applied Materials Inc.+ 3,856,184
14,500 Broadcom Corp.+ 3,224,437
589,368 Intel Corp. 26,521,560
26,000 Jabil Circuit Inc.+ 1,483,625
27,653 Linear Technologies Corp. 1,785,347
24,691 Maxim Integrated Products Inc.+ 1,637,322
41,479 Microchip Technology Inc.+ 1,311,773
13,500 Sanmina Corp.+ 1,543,219
137,148 Texas Instruments Inc. 6,728,824
29,134 Xilinx Inc.+ 2,110,394
--------------------------------------------------------------------------------
51,738,987
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Identified Cost-- $432,658,826) 527,184,700
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
16 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.9%
First Union National Bank Repurchase
Agreement 6.45% due 11/1/00
proceeds at maturity $15,827,000
(Fully collateralized by Fannie Mae,
5.00% due 11/02/01
valued at $16,150,225)
(Identified Cost -- $15,827,000) $ 15,827,000
================================================================================
TOTAL INVESTMENTS
(IDENTIFIED COST -- $448,485,826) $543,011,700
================================================================================
+ NON-INCOME PRODUCING SECURITY
SEE NOTES TO FINANCIAL STATEMENTS
17 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $448,485,826) $543,011,700
Dividends and interest receivable 146,319
--------------------------------------------------------------------------------
TOTAL ASSETS 543,158,019
================================================================================
LIABILITIES:
Payable for participant withdrawals 2,370
Payable to affiliates-- Management fees (Note 2) 173,467
Payable to the custodian 279,891
Accrued expenses and other liabilities 377,935
--------------------------------------------------------------------------------
TOTAL LIABILITIES 833,663
--------------------------------------------------------------------------------
NET ASSETS $542,324,356
================================================================================
REPRESENTED BY: PAID-IN CAPITAL FOR BENEFICIAL INTERESTS $542,324,356
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
18 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME:
Dividend income $ 3,561,209
Interest income 1,144,669
-------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,705,878
===============================================================================
EXPENSES:
Management fees (Note 2) 3,944,108
Custody and fund accounting fees 149,112
Audit fees 23,530
Trustees fees 15,228
Legal fees 3,568
Other 5,649
-------------------------------------------------------------------------------
TOTAL EXPENSES 4,141,195
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 564,683
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 58,018,534
Unrealized depreciation of investments (39,456,044)
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 18,562,490
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 19,127,173
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
19 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 564,683 $ 286,398
Net realized gain on investment transactions 58,018,534 130,508,299
Unrealized appreciation (depreciation)
of investments (39,456,044) 16,171,002
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 19,127,173 146,965,699
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 142,787,874 301,816,661
Value of withdrawals (322,890,902) (356,386,616)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS (180,103,028) (54,569,955)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (160,975,855) 92,395,744
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 703,300,211 610,904,467
--------------------------------------------------------------------------------
END OF PERIOD $542,324,356 $703,300,211
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
20 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
------------------------------ 1997 -------------------
2000 1999 1998 (NOTE 1F) 1996 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $542,324 $703,300 $610,904 $324,913 $288,562 $246,158
Ratio of expenses to average net assets 0.63% 0.67% 0.71% 0.60%* 0.60% 0.60%
Ratio of net investment income to average net assets 0.09% 0.04% 0.23% 0.62%* 1.10% 1.73%
Portfolio turnover 80% 108% 53% 103% 90% 67%
===================================================================================================================================
</TABLE>
* ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
21 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Large Cap Growth Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Trust"), is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company which
was organized as a trust under the laws of the State of New York. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. The Investment Manager of the Portfolio is Citibank, N.A.
("Citibank").
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale 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. Expenses incurred by the Trust with respect to
any two or more portfolios or series are allocated in proportion to the average
net assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to a
portfolio are charged to that portfolio.
F. 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 or
an affiliate also provides certain administrative services to the Portfolio.
These administrative services include providing general office facilities and
supervising the overall administration of
22 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
the Portfolio. Citibank is a wholly-owned subsidiary of Citigroup Inc.
The management fees paid to Citibank amounted to $3,944,108 for the year ended
October 31, 2000. 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 Manager, all of whom receive remuneration for their
services to the Trust from the Manager or its affiliates.
3. Purchases And Sales Of Investments
Purchases and sales of investments, other than short-term obligations,
aggregated $516,047,468 and $693,530,353, respectively, for the year ended
October 31, 2000.
4. Federal Income Tax Basis Of Investments
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 2000, as computed on a federal income tax basis,
are as follows:
================================================================================
Aggregate cost $447,237,275
--------------------------------------------------------------------------------
Gross unrealized appreciation $116,570,769
Gross unrealized depreciation (20,796,344)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 95,774,425
--------------------------------------------------------------------------------
5. Line of Credit
The Portfolio, along with various other Portfolios in the family of funds,
entered into an ongoing line of credit agreement with a bank which allows the
Funds and Portfolios collectively to borrow up to $75 million for temporary or
emergency purposes. Interest on the borrowings, if any, is charged to the
specific portfolio executing the borrowing at the base rate of the bank. The
line of credit requires a quarterly payment of a commitment fee based on the
average daily unused portion of the line of credit. For the year ended October
31, 2000, the commitment fee allocated to the Portfolio was $1,990. Since the
line of credit was established, there have been no borrowings.
23 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS WITH RESPECT TO ITS
SERIES, LARGE CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Large Cap Growth Portfolio (the "Portfolio"), a
series of The Premium Portfolios, at October 31, 2000, and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian, provide
a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio at October 31, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 2000
24 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY
DIVERSIFIED LARGE CAP GROWTH FUND
TRUSTEES & OFFICERS
C. Oscar Morong Jr., Chairman
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon*
E. Kirby Warren
William S. Woods Jr.**
PRESIDENT
Heath B. McLendon*
SECRETARY
Robert Frenkel*
TREASURER
Lewis E. Daidone*
* Affiliated Person of
Investment Manager
** Trustee Emeritus
INVESTMENT MANAGER
(of Large Cap Growth Portfolio)
Citibank, N.A.
153 East 53rd Street,
New York, NY 10043
DISTRIBUTOR
Salomon Smith Barney Inc.
CUSTODIAN
State Street Bank
& Trust Company
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPCGlobal Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
This report is submitted for general information of the shareholders of Smith
Barney Diversified Large Cap Fund, but it may also be used as sales literature
when preceded or accompanied by the current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Fund. If used as sales material after January 31, 2001, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
SMITH BARNEY DIVERSIFIED LARGE CAP GROWTH FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD02135 12/00
<PAGE>
SMITH BARNEY
SMALL CAP GROWTH
OPPORTUNITIES FUND
ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED]
SMITH BARNEY
MUTUAL FUNDS
Your Serious Money. Professionally Managed.(SM)
--------------------------------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
-------------------------------------
[PHOTO OMITTED] ANNUAL REPORT o OCTOBER 31, 2000
MARGUERITE WAGNER, PORTFOLIO MANAGER
SMITH BARNEY SMALL CAP
[PHOTO OMITTED] GROWTH OPPORTUNITIES FUND
STEPHEN RICH, PORTFOLIO MANAGER
--------------------------------------------------------------------------------
MARGUERITE WAGNER
Marguerite Wagner has more than 14 years of securities business experience and
has been managing the Fund since January 1999.
Education: BS from Pennsylvania State University,
MBA from New York University's Stern School of Business
--------------------------------------------------------------------------------
STEPHEN RICH
--------------------------------------------------------------------------------
Stephen Rich has more than 10 years of investment experience and has been
co-managing the Fund since March 2000.
Education: BA from Princeton University, MBA from New York University's Stern
School of Business.
--------------------------------------------------------------------------------
FUND OBJECTIVE
--------------------------------------------------------------------------------
The Fund seeks long-term capital growth. Dividend income, if any, is incidental
to this goal.
--------------------------------------------------------------------------------
FUND FACTS
--------------------------------------------------------------------------------
FUND INCEPTION
--------------------------------------------------------------------------------
June 21, 1995
MANAGER INVESTMENT INDUSTRY EXPERIENCE
----------------------------------------------------------------
14 Years (Marguerite Wagner)
10 Years (Stephen Rich)
Class A Class B Class L
----------------------------------------------------------------
NASDAQ CFSGX -- --
----------------------------------------------------------------
Inception 6/21/95 1/4/99 9/22/00
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
----------------------------------------------------------------
One-Year 44.87% 43.78% --
----------------------------------------------------------------
Five-Year 24.40% -- --
----------------------------------------------------------------
Since Inception+ 26.75% 30.13% (4.78)%*
----------------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
----------------------------------------------------------------
One-Year 37.63% 36.59% --
----------------------------------------------------------------
Five-Year 23.13% -- --
----------------------------------------------------------------
Since Inception+ 25.54% 26.52% (6.68)%*
----------------------------------------------------------------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction all applicable sales
charges with respect to Class A and L shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if any
at net asset value. In addition, Class A and L shares reflect the deduction
of the maximum sales charge of 5.00% and 1.00%, respectively; and Class B
shares reflect the deduction of a 5.00% CDSC, which applies if shares are
redeemed within one year from initial purchase. Thereafter, this CDSC
declines by 1.00% per year until no CDSC is incurred. Class L shares also
reflect the deduction of 1.00% CDSC, which applies if shares are redeemed
within first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Inception dates for Class A, B and L shares are June 21, 1995, January 4,
1999 and September 22, 2000, respectively.
* Not annualized
--------------------------------------------------------------------------------
WHAT'S INSIDE
Letter from the President .......................... 1
Fund at a Glance ................................... 2
Letter to Our Shareholders ......................... 3
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
Statement of Assets and Liabilities ................ 5
Statement of Operations ............................ 6
Statement of Changes in Net Assets ................. 7
Financial Highlights ............................... 8
Notes to Financial Statements ...................... 11
Independent Auditors' Report ....................... 14
SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments ........................... 15
Statement of Assets and Liabilities ................ 19
Statement of Operations ............................ 20
Statement of Changes in Net Assets ................. 21
Financial Highlights ............................... 21
Notes to Financial Statements ...................... 22
Independent Auditors' Report ....................... 24
[LOGO OMITTED]
SMITH BARNEY
MUTUAL FUNDS
Your Serious Money. Professionally Managed.(SM)
----------------------------------------------------------------------------
Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
----------------------------------------------------------------------------
60598 11/00
<PAGE>
--------------------------------------------------------------------------------
LETTER FROM THE PRESIDENT
--------------------------------------------------------------------------------
The new millennium, so far, has been marked by historic levels of market
volatility and concerns that the bull market in stocks may be running out of
steam. We believe that a well-rounded investment plan including both stock and
bond funds managed by seasoned professionals may be a prudent way to realize
your financial objectives over time, especially with uncertain market
conditions.
The Smith Barney Small Cap Growth Opportunities Fund, led by experienced
portfolio managers Marguerite Wagner and Stephen Rich, seeks to offer long-term
capital growth by investing in small-cap companies. Marguerite and Stephen use a
growth-oriented investment style that emphasizes small U.S. companies with what
they deem to have superior management teams with good prospects for growth.
[PHOTO OMITTED]
HEATH B. MCLENDON
PRESIDENT
----------------------
Marguerite and Stephen continually seek to maintain their clients' confidence in
their investment approach. They are committed to their clients' investment
success and utilize the ultimate in resources in managing the Fund.
We thank you for your confidence in their investment management approach.
Sincerely,
/s/ Heath B. McLendon
---------------------
Heath B. McLendon
President
NOVEMBER 10, 2000
1 | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND AT A GLANCE
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF THE
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND CLASS A VS. BENCHMARKS
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$33,901 with sales charge (as of 10/31/00). The graph shows how the Fund
compares to its benchmarks over the same period.
[Table below represent line chart in printed piece]
CitiFunds Small Lipper Small Cap
Cap Growth Growth Funds Avg. Russell 2000 Growth Index
6/21/95 9500 10000 10000
6/30/95 10050 10000 10000
7/31/95 10970 10748 10779
8/31/95 11640 10925 10912
9/30/95 12000 11188 11136
10/31/95 11980 10812 10588
11/30/95 13550 11212 11055
12/31/95 14478 11375 11301
1/31/96 14842 11295 11207
2/29/96 16297 11763 11718
3/31/96 17126 12077 11950
4/30/96 19199 12980 12868
5/31/96 20584 13547 13528
6/30/96 19963 13023 12649
7/31/96 17674 11903 11104
8/31/96 19870 12624 11926
9/30/96 20712 13265 12540
10/31/96 20076 13000 12000
11/30/96 20445 13378 12333
12/31/96 19950 13582 12574
1/31/97 20804 13929 12878
2/28/97 19599 13333 12100
3/31/97 18416 12634 11246
4/30/97 17868 12538 11115
5/31/97 20497 14062 12786
6/30/97 21615 14804 13220
7/31/97 22352 15727 13896
8/31/97 22681 16014 14313
9/30/97 24627 17228 15456
10/31/97 23352 16463 14527
11/30/97 23143 16221 14181
12/31/97 23105 16358 14189
1/31/98 22071 16076 14001
2/28/98 24690 17327 15237
3/31/98 25690 18133 15875
4/30/98 25793 18281 15972
5/31/98 23782 17250 14811
6/30/98 25540 17387 14962
7/31/98 23380 16136 13713
8/31/98 17544 12908 10548
9/30/98 19129 14074 11617
10/31/98 19485 14633 12224
11/30/98 20726 15580 13172
12/31/98 22082 16722 14365
1/31/99 22162 16785 15011
2/28/99 19979 15414 13637
3/31/99 20439 15713 14123
4/30/99 20933 16720 15370
5/31/99 20922 17041 15394
6/30/99 22346 18175 16206
7/31/99 22622 18046 15705
8/31/99 22691 17566 15117
9/30/99 23541 17627 15409
10/31/99 24633 17983 15804
11/30/99 26861 19406 17474
12/31/99 31170 21748 20555
1/31/00 30952 21217 20364
2/29/00 39224 24457 25102
3/31/00 35823 24124 22464
4/30/00 32767 22636 20195
5/31/00 30481 21459 18426
6/30/00 35088 23676 20807
7/31/00 33295 22887 19024
8/31/00 38868 25103 21025
9/30/00 37408 24425 19980
10/31/00 35685 23404 18358
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the indices) and 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 "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors and reflect
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. The maximum
sales charge of 5.00% went into effect on January 4, 1999. Investors may not
invest directly in an index.
------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS*
------------------------------------------------------------------
------------------------------------------------------------------
1. R &B FALCON CORP. ................................. 2.53%
2. SHAW GROUP INC. ................................... 2.43
3. MERCURY INTERACTIVE CORP. ......................... 2.08
4. EMULEX CORP. ...................................... 2.00
5. CATALINA MARKETING CORP. .......................... 1.92
6. MILLENNIUM PHARMACEUTICALS INC. ................... 1.82
7. SHIRE PHARMACEUTICALS GROUP PLC ................... 1.66
8. NEWPORT CORP. ..................................... 1.64
9. BISYS GROUP, INC. ................................. 1.61
10. IDEC PHARMACEUTICALS CORP. ........................ 1.57
------------------------------------------------------------------
* As a percentage of total investments.
--------------------------------------------------------
PORTFOLIO BREAKDOWN
--------------------------------------------------------
[Table below represents pie chart in printed piece.]
--------------------------------------------------------
**Short-Term 10%
Commercial Services 1%
Technology Services 2%
Electronics/Technical Services 24%
Utilites 1%
Telecommunications 3%
Semi-Conductor 5%
Consumer Service 6%
Software 2%
Finance 8%
HealthServices/Technology 19%
Retail 5%
Capital Goods/Producer Manufacturing 5%
Energy Minerals 7%
Transportation 1%
Industrial Services 1%
--------------------------------------------------------
** Includes cash and net other assets.
2 | 2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER,
We are proud to provide the annual report for the Small Cap Growth Opportunities
Fund ("Fund") for the year ended October 31, 2000. In this report we have
summarized the period's prevailing economic and market conditions and outlined
our investment strategy. A detailed summary of the Fund's performance can be
found in the appropriate sections that follow. We hope you find this report to
be useful and informative.
PERFORMANCE UPDATE
We are pleased to report that for the year ended October 31, 2000, the Fund's
Class A shares, without and with sales charges, returned 44.87% and 37.63%,
respectively. In comparison, the Russell 2000 Growth Index ("Russell 2000")(1)
returned 16.16% and the Lipper Inc.(2) peer group of small cap funds returned
29.84% for the same time period. (Past performance is not indicative of future
results.)
INVESTMENT STRATEGY
The Fund seeks long-term capital growth by investing primarily in equity
securities of U.S. small cap issuers that, at the time the securities are
purchased, have market capitalizations below the top 1,000 stocks of the equity
market.
Using the Russell 2000 Growth Index as our primary investment universe, we
exhaustively screen those companies for what we see as improving fundamental
trends such as earnings revisions, earnings surprises and cash flow to price
ratios. Generally, once this stringent screening process is completed, a
universe of 500 companies remains.
The second aspect of our fundamental research involves working closely with our
global research team. Our team has two dedicated small capitalization analysts
in addition to 65 industry analysts worldwide. We believe our research team,
with its in-depth fundamental analysis, can often provide an edge in
understanding companies' fundamentals in addition to offering an objective
perspective of Wall Street's earnings expectations.
We believe that searching for "pure" small-cap growth stocks is an ongoing
challenge as this market is often less efficient given the generally lower level
of research coverage and the lack of earnings by many small-cap companies.
We seek to help control the risk and maximize the rewards of the Fund's overall
portfolio by looking to maintain some form of representation in all industry
sectors. During the period, the Fund was well diversified, with investments in
sectors from basic materials and energy to health care and technology. Moreover,
we look to own between 100 and 130 holdings in the Fund's portfolio, remaining
sector neutral relative to the benchmark. However, the market capitalization of
the portfolio will normally be representative of the Russell 2000 Growth Index.
(Please note that the number of holdings in the Fund is subject to change.)
MARKET AND PORTFOLIO UPDATE
For the twelve month period ended October 31, 2000, the Russell 2000 Growth
Index returned a healthy 16.2%, surpassing the negative 6.1% return of the S&P
500 and the negative 13.6% return of the Nasdaq Composite Index. While returns
over the full year were strong, we witnessed two very different market
environments with extreme amounts of volatility in each. The period started with
a boom as investors flocked to the small cap market and pushed the share prices
of many healthcare and technology stocks, especially non-earnings biotech and
internet-related companies, to higher levels. In the first four months of the
period, the Russell 2000 Growth Index returned 59%. This period came to an
abrupt halt in March, as investors became concerned with company valuations, the
viability of many companies' business models, and the direction of interest
rates.
The Federal Reserve Board's (the "Fed") change in monetary policy during the
period caused many investors to question
------------------
1 THE RUSSELL 2000 GROWTH INDEX MEASURES THE PERFORMANCE OF THE 2,000 SMALLEST
COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 8% OF THE
TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. PLEASE NOTE THAT AN
INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
2 LIPPER IS AN INDEPENDENT MUTUAL FUND-TRACKING ORGANIZATION. THE FUND'S
CALCULATION OF THE LIPPER PEER GROUP AVERAGE INCLUDES THE REINVESTMENT OF ALL
CAPITAL GAINS AND DIVIDENDS WITHOUT THE EFFECTS OF SALES CHARGES.
3 | 2000 Annual Report to Shareholders
<PAGE>
the durability of broad economic growth. The Fed increased the federal funds
rate(3) and the discount rate(4) that led to higher interest rates in the
economy.
In this market environment, companies that rely most heavily on borrowing money
to fund the prospect of future earnings were the harder hit. Of course, many of
the stocks that many investors had favored during the first four months of the
period returned to more rational valuation levels. In addition, investors began
to realize that not all of the companies that had called themselves "internet
plays" were going to produce the results that they had promised.
In the later part of the period, we began to see many companies miss revenue and
earnings projections causing analysts to reduce previously set expectations. Not
surprisingly, the Russell 2000 Growth Index returned a lackluster negative 30%
for the last eight months of the period as money rotated into companies
perceived to have lower valuations and "real business models."
While this market was certainly challenging, it did present opportunity for
certain managers. We believe our prudent approach in selecting stocks by using
extensive fundamental research and adhering to diversification, contributed
positively to the Fund's performance during the period.
Examples of companies that offered solid performance during the period included
R&B Falcon, an oil service company, Mercury Interactive, a software testing
company, Newport Corp., a fiberoptics company and Shaw Group, Inc. a major
supplier of fabricated piping systems in the United States.5
Although many of the Fund's more substantial holdings performed well during the
period, some of the Fund's holdings were negatively impacted by the recent
market downturn in shares of technology and telecommunications companies.
However, we believe that our disciplined investment approach helped minimize the
recent downturn in these two sectors, leading to the Fund's outperformance
against its Lipper peer group and the Russell 2000 Growth Index.
We believe investing across many different industries within the small cap
universe is crucial--as such, during the period, no one holding in the Fund
exceeded 4% of the Fund's total assets. (Of course, no guarantees can be given
that this will remain true.)
MARKET OUTLOOK
Going forward, we believe that the small capitalization growth market may
continue to be very volatile. However, we expect that the Russell 2000 Growth
Index may post competitive results relative to the overall market because many
companies operating in the small cap growth market are viewed as having strong
growth potential. Additionally, the Fed is widely perceived to have a more
neutral stance with respect to its monetary policy for the remainder of 2000,
which we believe may benefit small cap companies. (Of course, no guarantees can
be given that this will occur.)
Thank you for your investment in the Smith Barney Small Cap Growth Opportunities
Fund and your continued confidence in our investment approach.
Sincerely,
/s/ Marguerite Wagner /s/ Stephen Rich
--------------------- ----------------
Marguerite Wagner Stephen Rich
NOVEMBER 10, 2000
THE INFORMATION PROVIDED IN THIS LETTER REPRESENTS THE OPINION OF THE MANAGERS
AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE
RESULTS OR INVESTMENT ADVICE. FURTHER, THERE IS NO ASSURANCE THAT CERTAIN
SECURITIES WILL REMAIN IN THE FUND. PLEASE REFER TO PAGES 15 THROUGH 18 FOR A
LIST AND PERCENTAGE BREAKDOWN OF THE FUND'S HOLDINGS. ALSO, PLEASE NOTE ANY
DISCUSSION OF THE FUND'S HOLDINGS IS AS OF OCTOBER 31, 2000 AND IS SUBJECT TO
CHANGE.
----------------
3 THE FEDERAL FUNDS RATE IS THE INTEREST RATE THAT BANKS WITH EXCESS RESERVES AT
A FEDERAL RESERVE DISTRICT BANK CHARGE OTHER BANKS THAT NEED OVERNIGHT LOANS.
THE FED FUNDS RATE OFTEN POINTS TO THE DIRECTION OF U.S. INTEREST RATES.
4 THE DISCOUNT RATE IS THE INTEREST RATE THAT THE FED CHARGES MEMBER BANKS FOR
LOANS, USING GOVERNMENT SECURITIES OR ELIGIBLE PAPER AS COLLATERAL. 5 PLEASE
NOTE THAT IN REFERENCE TO INDIVIDUAL HOLDINGS WITHIN THE FUND, NO GUARANTEES
CAN BE GIVEN THAT MANAGEMENT'S EXPECTATIONS WILL BE MET. HOWEVER, MANAGEMENT
WILL CONTINUE TO CLOSELY MONITOR THE FUND'S HOLDINGS, LOOKING FOR ANY CHANGES
THAT MAY HAVE AN IMPACT ON PERFORMANCE OVER THE LONG TERM.
4 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Small Cap Growth Portfolio, at value (Note 1A) $ 32,519,394
Receivable for shares of beneficial interest sold 7,308
Receivable from the Sub-Administrator (Note 6) 18,457
----------------------------------------------------------------------------------------------
TOTAL ASSETS 32,545,159
----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 2,540
Accrued expenses and other liabilities 63,021
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 65,561
----------------------------------------------------------------------------------------------
NET ASSETS $ 32,479,598
==============================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 15,190,125
Unrealized appreciation 4,755,133
Accumulated net realized gain 12,534,340
----------------------------------------------------------------------------------------------
TOTAL $ 32,479,598
==============================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($30,717,322/988,832 shares outstanding) $31.06
Offering Price per share ($31.06 / 0.95) $32.69*
==============================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price ($1,743,461/56,887 shares
outstanding) $30.65**
==============================================================================================
CLASS L SHARES:
Net Asset Value per share and offering price ($18,815/605.724 shares outstanding) $31.06
Offering Price per share ($31.06 / 0.99) $31.37
==============================================================================================
</TABLE>
* BASED UPON SINGLE PURCHASES OF LESS THAN $25,000.
** REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY APPLICABLE
CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS.
5 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME (NOTE 1B):
Dividend Income from Small Cap Growth Portfolio $ 60,825
Interest Income from Small Cap Growth Portfolio 107,736
Allocated Expenses from Small Cap Growth Portfolio (269,593)
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT LOSS (101,032)
----------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 110,146
Service fees Class A (Note 3) 75,517
Service fees Class B (Note 3) 12,620
Service fees Class L (Note 3) 14
Transfer agent fees 68,751
Legal fees 42,507
Custody and fund accounting fees 27,285
Shareholder reports 26,624
Audit fees 24,890
Trustees fees 11,504
Other 27,607
----------------------------------------------------------------------------------------------
TOTAL EXPENSES 427,465
Less: Expenses assumed by the Sub-Administrator (Note 6) (152,604)
Aggregate amount waived by the Manager (Note 2) (110,146)
----------------------------------------------------------------------------------------------
NET EXPENSES 164,715
----------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (265,747)
----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM SMALL CAP GROWTH PORTFOLIO:
Net realized gain 14,570,499
Unrealized depreciation (4,110,498)
----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM SMALL CAP GROWTH PORTFOLIO 10,460,001
----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,194,254
==============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 2000 1999
==============================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (265,747) $ (280,709)
Net realized gain 14,570,499 3,177,000
Unrealized appreciation (depreciation) (4,110,498) 3,137,565
----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 10,194,254 6,033,856
----------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 5,271,471 8,184,015
Cost of shares repurchased (8,258,541) (18,128,031)
----------------------------------------------------------------------------------------------
Total Class A (2,987,070) (9,944,016)
----------------------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 916,279 710,202
Cost of shares repurchased (194,329) (71,357)
----------------------------------------------------------------------------------------------
Total Class B 721,950 638,845
----------------------------------------------------------------------------------------------
CLASS L**
Net proceeds from sale of shares 19,468 --
Cost of shares repurchased -- --
----------------------------------------------------------------------------------------------
Total Class L 19,468 --
----------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (2,245,652) (9,305,171)
----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 7,948,602 (3,271,315)
----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 24,530,996 27,802,311
----------------------------------------------------------------------------------------------
END OF PERIOD $32,479,598 $24,530,996
==============================================================================================
</TABLE>
* JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS).
** SEPTEMBER 22, 2000 (COMMENCEMENT OF OPERATIONS).
SEE NOTES TO FINANCIAL STATEMENTS.
7 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OF OPERATIONS)
---------------------------------- 1997 DECEMBER 31, TO DECEMBER 31,
CLASS A SHARES 2000 1999 1998 (NOTE 1F) 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.44 $16.96 $21.24 $18.21 $14.32 $10.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (loss) (0.525) (0.196)+ (0.193)+ (0.138)+ (0.016) 0.050
Net realized and unrealized gain (loss) 10.145 4.676 (3.224) 3.236 5.407 4.420
------------------------------------------------------------------------------------------------------------------------------------
Total From Operations 9.62 4.480 (3.417) 3.098 5.391 4.470
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- -- -- (0.050)
Net realized gain -- -- (0.863) (0.068) (1.501) (0.100)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.863) (0.068) (1.501) (0.150)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.06 $21.44 $16.96 $21.24 $18.21 $14.32
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $30,717 $23,794 $27,802 $25,799 $24,311 $5,148
Ratio of expenses to average net assets (A) 1.35% 1.35% 1.35% 1.35%* 0.88% 0.00%*
Ratio of net investment income
(loss) to average net assets (0.82)% (1.03)% (0.98)% (0.87)%* (0.13)% 1.21%*
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 44.87% 26.42% (16.56)% 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 AND 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 LOSS PER SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.435) $(0.351)+ $(0.319)+ $(0.252)+ $(0.133) $(0.288)
RATIOS:
Expenses to average net assets (A) 2.18% 2.16% 1.99% 2.06%* 1.83% 2.50%*
Net investment loss to average net assets (1.65)% (1.84)% (1.62)% (1.58)%* (1.08)% (1.29)%*
====================================================================================================================================
</TABLE>
* 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 ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 4, 1999
YEAR ENDED (COMMENCEMENT
OCTOBER 31, OF OPERATIONS) TO
CLASS B SHARES 2000 OCTOBER 31, 1999
================================================================================================
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.31 $18.95
------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.481) (0.265)+
Net realized and unrealized gain 9.821 2.625
------------------------------------------------------------------------------------------------
Total From Operations 9.34 2.360
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
Net realized gain -- --
------------------------------------------------------------------------------------------------
Total Distributions -- --
------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $30.65 $21.31
====================================================================================-===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $1,743 $737
Ratio of expenses to average net assets (A) 2.10% 2.10%*
Ratio of net investment loss to average net assets (1.55)% (1.77)%*
------------------------------------------------------------------------------------------------
TOTAL RETURN 43.78% 12.45%**
================================================================================================
NOTE: IF AGENTS OF THE FUND AND AGENTS OF SMALL CAP GROWTH PORTFOLIO HAD NOT
VOLUNTARILY WAIVED A PORTION OF THEIR FEES AND ASSUMED FUND EXPENSES FOR THE
PERIODS INDICATED, THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD HAVE
BEEN AS FOLLOWS:
Net investment loss per share $(0.621) $(0.420)+
RATIOS:
Expenses to average net assets (A) 2.93% 2.91%*
Net investment loss to average net assets (2.40)% (2.58)%*
================================================================================================
</TABLE>
* 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 ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
SEPTEMBER 22, 2000
(COMMENCEMENT
OF OPERATIONS) TO
CLASS L SHARES OCTOBER 31, 2000
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $32.62
--------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.065)
Net realized and unrealized loss (1.495)
--------------------------------------------------------------------------------
Total From Operations (1.56)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.06
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $19
Ratio of expenses to average net assets (A) 2.10%*
Ratio of net investment loss to average net assets (1.91)%*
--------------------------------------------------------------------------------
TOTAL RETURN (4.78)%**
================================================================================
NOTE: IF AGENTS OF THE FUND AND AGENTS OF SMALL CAP GROWTH PORTFOLIO HAD NOT
VOLUNTARILY WAIVED A PORTION OF THEIR FEES AND ASSUMED FUND EXPENSES FOR THE
PERIODS INDICATED, THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD HAVE
BEEN AS FOLLOWS:
Net investment loss per share $(0.140)
RATIOS:
Expenses to average net assets (A) 2.93%*
Net investment loss to average net assets (2.74)%*
================================================================================
* 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 ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
10 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Small Cap Growth Opportunities Fund (formerly 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"), a management investment company for which
Citibank, N.A. ("Citibank") serves as Investment Manager. The value of such
investment reflects the Fund's proportionate interest (57.5% at October 31,
2000) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acted as the
Fund's Sub-Administrator through October 31, 2000. CFBDS acted as the Fund's
Distributor until August 31, 2000. Effective September 1, 2000 Salomon Smith
Barney Inc. became the Fund's Distributor.
The Fund offers Class A, Class B and Class L shares. Class A shares have a
front-end, or initial, sales charge. This sales charge may be reduced or
eliminated in certain circumstances. Class B shares have no front-end sales
charge, pay a higher ongoing distribution fee than Class A shares, and are
subject to a deferred sales charge if sold within six years of purchase. Class B
shares automatically convert into Class A shares after eight years. Class L
shares have a front-end, or initial, sales charge lower than Class A shares, pay
a higher ongoing distribution fee than Class A shares, and are subject to a
deferred sales charge if sold within 1 year of purchase. Expenses of the Fund
are borne pro-rata by the holders of each class of shares, except that each
class bears expenses unique to that class (including the Rule 12b-1 service and
distribution fees applicable to such class), and votes as a class only with
respect to its own Rule 12b-1 plan. Shares of each class would receive their
pro-rata share of the net assets of the Fund, if the Fund were liquidated. Class
A shares have lower expenses than Class B and Class L shares. For the year ended
October 31, 2000, the distributor received net commissions paid by investors of
$17,219 and $0 from sales of Class A and Class L shares, respectively and
$15,031 in deferred sales charges from redemptions of Class B shares.
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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the 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 the distributor. 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.
11 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
E. DISTRIBUTIONS Distributions to shareholders are recorded on the 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 year ended October
31, 2000, the Fund reclassified $265,747 to accumulated net realized gain from
accumulated net investment loss.
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 are 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 or an affiliate also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. Citibank is a wholly-owned subsidiary of Citigroup
Inc.
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 $110,146 all of which was
voluntarily waived for the year ended October 31, 2000.
The Trust pays no compensation directly to any Trustee or any other officer who
is affiliated with the Manager, all of whom receive remuneration for their
services to the Trust from the Manager or its affiliates.
3. Service Fees
The Fund maintains separate Service Plans for Class A,
Class B and Class L shares, which have been adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended. Under the Class A
Service Plan, the Fund may pay monthly fees at an annual rate not to exceed
0.25% of the average daily net assets represented by Class A shares of the Fund.
The Service fees for Class A shares amounted to $75,517 for the year ended
October 31, 2000. Under the Class B and Class L Service Plan, the Fund may pay a
combined monthly distribution and service fee at an annual rate not to exceed
1.00% of the average daily net assets represented by Class B shares of the Fund.
The Service fees for Class B and Class L shares amounted to $12,620 and $14,
respectively for the year ended October 31, 2000. These fees may be used to make
payments to the Distributor for distribution services and to others as
compensation for the sale of shares of the applicable class of the Fund, for
advertising, marketing, or other promotional activity, and for preparation,
printing and distribution of prospectuses, statements of additional information
and reports for recipients other than regulators and existing shareholders. The
Fund also may make payments to the Distributor and others for providing personal
service or the maintenance of shareholder accounts.
4. Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for the period
aggregated $6,951,510 and $9,305,522, respectively.
12 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------------------
2000 1999
=============================================================================================
<S> <C> <C>
CLASS A
Shares sold 168,978 444,606
Shares issued to shareholders from reinvestment of distributions -- --
Shares repurchased (290,116) (973,797)
---------------------------------------------------------------------------------------------
Class A net decrease (121,138) (529,191)
=============================================================================================
CLASS B*
Shares sold 29,360 38,207
Shares issued to shareholders from reinvestment of distributions -- --
Shares repurchased (7,071) (3,609)
---------------------------------------------------------------------------------------------
Class B net increase 22,289 34,598
=============================================================================================
CLASS L**
Shares sold 606 --
Shares issued to shareholders from reinvestment of distributions -- --
Shares repurchased -- --
---------------------------------------------------------------------------------------------
Class L net increase 606 --
=============================================================================================
</TABLE>
* JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS)
** SEPTEMBER 22, 2000 (COMMENCEMENT OF OPERATIONS)
6. Assumption of Expenses
CFBDS has voluntarily agreed to pay a portion of the unwaived expenses of the
Fund for the year ended October 31, 2000, which amounted to $152,604.
13 | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II:
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
(FORMERLY CITIFUNDS SMALL CAP GROWTH PORTFOLIO):
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Smith Barney Small Cap Growth Opportunities Fund (the "Fund"), a series of
CitiFunds Trust II, at October 31, 2000, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 2000
14 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
<S> <C> <C> <C>
COMMON STOCK -- 90.2%
CAPITAL GOODS/PRODUCER MANUFACTURING -- 5.2%
4,308 Alliant Techsystems, Inc.+ $ 387,451
22,181 Aptagroup, Inc. 458,869
16,936 Mettler Toledo International, Inc.+ 790,700
17,537 Shaw Group Inc.+ 1,429,266
----------------------------------------------------------------------------------------
3,066,286
----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.5%
9,049 Ixia+ 212,086
19,347 Source Information Management Co.+ 106,409
----------------------------------------------------------------------------------------
318,495
----------------------------------------------------------------------------------------
CONSUMER SERVICES -- 5.8%
7,170 AC Nielson Corp.+ 171,632
17,003 Callaway Golf Co. 272,048
28,862 Catalina Marketing Corp.+ 1,132,833
7,843 Emmis Communications Corp.+ 209,800
9,257 Ethan Allen Interiors, Inc. 270,767
8,669 Hispanic Broadcasting Corp.+ 270,906
7,036 Houghton Mifflin Co. 259,013
6,062 Imax Corp.+ 29,552
10,334 Isle of Capri Casinos Inc.+ 113,674
5,050 P F Chang China Bistro Inc.+ 207,050
11,180 Station Casinos Inc.+ 180,278
7,275 Westwood One, Inc.+ 137,770
4,712 XM Satellite Radio Holdings Inc.+ 136,648
----------------------------------------------------------------------------------------
3,391,971
----------------------------------------------------------------------------------------
ELECTRONIC/TECHNICAL SERVICES -- 24.7%
11,847 Actuate Corp.+ 333,937
10,753 Aeroflex, Inc.+ 639,803
11,170 Applied Micro Circuits Corp.+ 853,807
5,588 Art Technology Group Inc.+ 350,647
6,262 ATMI Inc.+ 118,195
12,990 C-Cube Microsystems, Inc.+ 253,305
9,020 Celeritek Inc.+ 298,224
214 Corio Inc.+ 1,097
16,365 Cylink Corp.+ 69,040
2,121 Digital Lightwave Inc.+ 107,508
2,794 E. Piphany Inc.+ 251,809
8,019 Emulex Corp.+ 1,177,791
13,667 Gasonics International Corp.+ 279,319
3,544 Informatica Corp.+ 334,908
3,862 Interwoven Inc.+ 389,096
5,385 Iona Technologies PLC ADRs+ 354,064
8,746 Macromedia, Inc.+ 673,989
7,036 Macrovision Corp.+ 512,749
11,047 Mercury Interactive Corp.+ 1,226,217
13,734 Methode Electronics Inc. 516,742
7,372 Multex System Inc.+ 95,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
<S> <C> <C> <C>
ELECTRONIC/TECHNICAL SERVICES -- (CONTINUED)
15,856 National Instruments Corp.+ $ 740,277
8,450 Newport Corp. 965,016
5,018 Packeteer Inc.+ 124,823
8,687 Powerwave Technologies, Inc.+ 418,062
8,841 Purchasepro, Inc.+ 238,707
27,619 Remec Inc.+ 823,391
3,969 Retek, Inc.+ 156,527
7,674 Sawtek, Inc.+ 390,415
15,015 Semtech Corp.+ 484,234
11,548 Silicon Image Inc.+ 135,689
16,867 Silicon Storage Technology, Inc.+ 383,724
16,193 Spectralink Corp.+ 120,435
2,897 Stratos Lightwave Inc.+ 76,589
3,131 Turnstone System Inc.+ 66,534
1,783 Veeco Instruments Inc.+ 118,040
3,231 WatchGuard Technologies Inc.+ 161,550
3,195 Webmethods Inc.+ 283,956
----------------------------------------------------------------------------------------
14,525,591
----------------------------------------------------------------------------------------
ENERGY/MINERALS -- 7.0%
3,702 Atwood Oceanics Inc.+ 124,248
11,747 Coflexip ADR 670,313
22,320 Hanover Compressore Co.+ 728,190
17,166 Osca Inc.+ 266,073
18,986 Precision Drilling Corp.+ 543,474
59,575 R & B Falcon Corp.+ 1,489,375
16,395 Varco International Inc.+ 282,814
----------------------------------------------------------------------------------------
4,104,487
----------------------------------------------------------------------------------------
FINANCE -- 8.3%
10,099 Affiliated Managers Group Inc.+ 607,202
33,325 Banknorth Group Inc. 604,016
20,054 Bisys Group, Inc.+ 945,045
12,086 Chittenden Corp. 321,034
24,617 Cullen Frost Bankers, Inc. 820,054
7,035 Presidential Life Insurance Corp. 102,447
9,965 SEI Investments Co. 904,324
16,462 West America Bancorporation 591,603
----------------------------------------------------------------------------------------
4,895,725
----------------------------------------------------------------------------------------
HEALTH SERVICES/TECHNOLOGY -- 19.0%
9,089 Alpharma, Inc. 352,767
5,924 Andrx Corp.+ 426,528
24,540 Apria Healthcare Group, Inc.+ 490,800
10,301 APW Ltd.+ 475,777
3,737 Aurora Bioscience Corp.+ 227,723
8,273 CIMA Labs Inc.+ 455,015
14,003 Corixa Corp.+ 623,133
4,309 Cubist Pharmaceuticals Inc.+ 185,152
5,048 Curagen Corp.+ 326,227
4,982 Emisphere Technologies Inc.+ 126,107
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
<S> <C> <C> <C>
HEALTH SERVICES/TECHNOLOGY -- (CONTINUED)
8,047 Enzon, Inc.+ $ 573,349
7,844 Genset S.A. ADRs+ 128,445
7,544 Gilead Sciences, Inc.+ 648,784
4,714 Idec Pharmaceuticals Corp.+ 924,533
2,323 K V Pharmaceuticals Co.+ 90,452
13,936 Lifepoint Hospitals, Inc.+ 540,020
5,351 Maxim Pharmaceuticals Inc.+ 237,451
7,674 Medicis Pharmaceutical Corp.+ 564,998
14,746 Millennium Pharmaceuticals Inc.+ 1,070,007
4,646 NPS Pharmaceuticals Inc.+ 199,197
3,467 Nanogen, Inc.+ 53,739
4,712 Pharmacyclics Inc.+ 253,565
15,530 Shire Pharmaceuticals Goup PLC, ADRs+ 976,449
2,255 Transkaryotic Therapies Inc.+ 83,999
14,340 Triad Hospitals Inc.+ 397,935
24,644 Varian, Inc.+ 759,343
----------------------------------------------------------------------------------------
11,191,495
----------------------------------------------------------------------------------------
INDUSTRIAL SERVICES -- 0.9%
7,036 Carlisle Inc. 292,873
9,694 Gentex Corp.+ 239,926
----------------------------------------------------------------------------------------
532,799
----------------------------------------------------------------------------------------
PRODUCER MANUFACTURING -- 0.3%
5,300 Teleflex Inc. 183,181
----------------------------------------------------------------------------------------
RETAIL -- 4.6%
9,863 Abercrombie & Fitch Co.+ 232,397
18,179 Cost Plus, Inc.+ 509,012
6,833 Footstar Inc.+ 245,134
15,291 Linens'n Things, Inc.+ 470,198
36,961 O'Reilly Automotive, Inc.+ 665,298
9,290 Ultimate Electronics Inc.+ 335,601
7,844 Zale Corp.+ 265,716
----------------------------------------------------------------------------------------
2,723,356
----------------------------------------------------------------------------------------
SEMI-CONDUCTOR -- 5.1%
19,776 Emcore Corp.+ 810,816
10,772 Exar Corp.+ 481,374
13,919 Mattson Technology Inc.+ 163,548
28,478 Oak Technology+ 799,164
12,526 Transwitch Corp.+ 723,377
----------------------------------------------------------------------------------------
2,978,279
----------------------------------------------------------------------------------------
SOFTWARE -- 2.0%
52,246 Activision, Inc.+ 721,648
6,631 Blue Martini Software Inc.+ 249,491
8,886 Microstrategy, Inc.+ 212,709
----------------------------------------------------------------------------------------
1,183,848
----------------------------------------------------------------------------------------
TECHNOLOGY SERVICES -- 1.8%
11,949 Idex Corp. 385,355
6,157 MRV Communications Inc.+ 243,202
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
<S> <C> <C> <C>
TECHNOLOGY SERVICES -- (CONTINUED)
6,531 Natural Microsystems Corp.+ $ 295,120
1,313 Nuance Communications Inc.+ 113,246
----------------------------------------------------------------------------------------
1,036,923
----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.2%
6,698 Digital Information Systems Inc.+ 84,562
9,829 Dobson Communications Corp.+ 127,777
3,750 Leap Wireless International Inc.+ 186,562
12,632 Pinnacle Holdings, Inc.+ 198,954
4,914 Powertel, Inc.+ 428,747
1,850 Tollgrade Communications Inc.+ 177,138
14,515 Western Wireless Corp.+ 689,463
----------------------------------------------------------------------------------------
1,893,203
----------------------------------------------------------------------------------------
TRANSPORTATION -- 0.9%
6,765 CH Robinson Worldwide 369,961
4,888 Eagle Inc.+ 139,308
----------------------------------------------------------------------------------------
509,269
----------------------------------------------------------------------------------------
UTILITIES -- 0.9%
11,410 Cleco Corp. 542,688
----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Identified Cost-- $41,773,206) 53,077,596
========================================================================================
========================================================================================
REPURCHASE AGREEMENT -- 9.8%
5,787,000 First Union National Bank Repurchase Agreement
6.45% due 11/1/00 proceeds at maturity $5,788,037
(collateralized by $5,890,000 Federal Home Loan Bank
6.25% due 8/13/04 valued at $5,904,725)
(Identified Cost-- $5,787,000) $ 5,787,000
========================================================================================
TOTAL INVESTMENTS -- 100%
(Identified Cost $47,560,206) $58,864,596
========================================================================================
</TABLE>
ADRS -- AMERICAN DEPOSITARY RECEIPTS
+ NON-INCOME PRODUCING SECURITIES
SEE NOTES TO FINANCIAL STATEMENTS.
18 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Note 1A) (Identified Cost, $41,773,206) $ 53,077,596
Short-term holdings at value (Note 1A) (Identified Cost, $5,787,000) 5,787,000
Cash 790
Receivable for investments sold 879,288
Dividends and interest receivable 5,441
-------------------------------------------------------------------------------------------
TOTAL ASSETS 59,750,115
-------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 3,130,722
Payable to affiliates-- Management fees (Note 2) 42,421
Accrued expenses and other liabilities 35,956
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,209,099
-------------------------------------------------------------------------------------------
NET ASSETS $56,541,016
===========================================================================================
REPRESENTED BY: PAID-IN CAPITAL FOR BENEFICIAL INTERESTS $56,541,016
===========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME:
Interest income $ 275,927
Dividend income 175,098
------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 451,025
------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 645,332
Custody and fund accounting fees 49,128
Audit fees 20,940
Legal fees 7,217
Trustees fees 6,940
Other 3,978
------------------------------------------------------------------------------
TOTAL EXPENSES 733,535
------------------------------------------------------------------------------
NET INVESTMENT LOSS (282,510)
------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 44,261,269
Unrealized depreciation of investments (13,053,084)
------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 31,208,185
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $30,925,675
==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
20 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 2000 1999
==================================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (282,510) $ (799,868)
Net realized gain on investment transactions 44,261,269 16,500,537
Unrealized appreciation (depreciation) of investments (13,053,084) 18,520,946
--------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 30,925,675 34,221,615
--------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 27,137,765 22,851,267
Value of withdrawals (98,473,742) (154,792,807)
--------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS (71,335,977) (131,941,540)
--------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (40,410,302) (97,719,925)
--------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 96,951,318 194,671,243
--------------------------------------------------------------------------------------------------
END OF PERIOD $ 56,541,016 $ 96,951,318
==================================================================================================
</TABLE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OF OPERATIONS)
---------------------------------- 1997 DECEMBER 31, TO DECEMBER 31,
2000 1999 1998 (NOTE 1F) 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $56,541 $96,951 $194,671 $49,598 $47,142 $4,989
Ratio of expenses to average net assets 0.85% 0.86% 0.88% 0.85%* 0.61% 0.00%*
Ratio of net investment income
(loss) to average net assets (0.33)% (0.54)% (0.50)% (0.37)%* 0.15% 1.22%*
Portfolio turnover 81% 104% 51% 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 LAWS FOR THE PERIOD
ENDED DECEMBER 31, 1995, THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
RATIOS:
Expenses to average net assets 0.85% 0.86% 0.88% 1.04%* 1.17% 2.50%*
Net investment loss to average
net assets (0.33)% (0.54)% (0.50)% (0.56)%* (0.41)% (1.28)%*
====================================================================================================================================
</TABLE>
* ANNUALIZED
SEE NOTES TO FINANCIAL STATEMENTS.
21 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Small Cap Growth Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Trust"), is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company which
was organized as a trust under the laws of the State of New York. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. The Investment Manager of the Portfolio is Citibank, N.A.,
("Citibank").
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale 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. Expenses incurred by the Trust with respect to
any two or more portfolios or series are allocated in proportion to the average
net assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to a
portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. 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. Citibank is a
wholly-owned subsidiary of Citigroup Inc.
22 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The management fees paid to Citibank amounted to $645,332 for the year ended
October 31, 2000. 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 $67,381,261 and $139,952,161, respectively, for the year ended
October 31, 2000.
4. Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 2000, as computed on a federal income tax basis,
are as follows:
Aggregate cost $47,578,728
==================================================================
Gross unrealized appreciation $16,395,486
Gross unrealized depreciation (5,109,618)
------------------------------------------------------------------
Net unrealized appreciation $11,285,868
==================================================================
5. Line of Credit
The Portfolio, along with various other Portfolios in the family of funds,
entered into an ongoing line of credit agreement with a bank which allows the
funds and Portfolios collectively to borrow up to $75 million for temporary or
emergency purposes. Interest on the borrowings, if any, is charged to the
specific portfolio executing the borrowing at the base rate of the bank. The
line of credit requires a quarterly payment of a commitment fee based on the
average daily unused portion of the line of credit. For the year ended October
31, 2000, the commitment fee allocated to the Portfolio was $266. Since the line
of credit was established, there have been no borrowings.
23 | 2000 Annual Report to Shareholders
<PAGE>
SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS
WITH RESPECT TO ITS SERIES, SMALL CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Small Cap Growth Portfolio (the "Portfolio"), a
series of The Premium Portfolios, at October 31, 2000, and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (herafter referred to as "financial highlights") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio at October 31, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 2000
24 | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SMALL CAP GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
---------------------------------------------------------------------
TRUSTEES AND OFFICERS INVESTMENT MANAGER
C. Oscar Morong Jr., Chairman (of Small Cap Growth Portfolio)
Riley C. Gilley Citibank, N.A
Diana R. Harrington 153 East 53rd Street,
Susan B. Kerley New York, NY 10043
Heath B. McLendon*
E. Kirby Warren DISTRIBUTOR
William S. Woods Jr.** Salomon Smith Barney Inc.
PRESIDENT CUSTODIAN
Heath B. McLendon* State Street Bank &
Trust Company
SECRETARY
Robert Frenkel* TRANSFER AGENT
Citi Fiduciary Trust Company
TREASURER 125 Broad Street, 11th Floor
Lewis E. Daidone* New York, New York 10004
* Affiliated Person of SUB-TRANSFER AGENT
Investment Manager PFPC Global Fund Services
** Trustee Emeritus P.O. Box 9699
Providence, Rhode Island
02940-9699
---------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
================================================================================
This report is submitted for general information
of the shareholders of Smith Barney Small Cap
Growth Opportunities Fund, but it may also be used
as sales literature when preceded or accompanied
by the current Prospectus, which gives details
about charges, expenses, investment objectives and
operating policies of the Fund. If used as sales
material after January 31, 2001, this report must
be accompanied by performance information for the
most recently completed calendar quarter.
SMITH BARNEY SMALL CAP
GROWTH OPPORTUNITIES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney
Mutual Funds, including management fees and
expenses, call or write your financial
professional for a free prospectus. Read it
carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[LOGO OMITTED]
-----------------
Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
FD02136 12/00
--------------------------------------------------------------------------------
