ANNUAL REPORT O OCTOBER 31, 1998
[LOGO]
International
Growth & Income
Portfolio
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INVESTMENT PRODUCTS:
NOT FDIC INSURED O NO BANK GUARANTEE O MAY LOSE VALUE
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INTERNATIONAL STOCKS
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Portfolio Highlights 4
................................................................................
Fund Performance 5
................................................................................
CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
Statement of Assets and Liabilities 6
................................................................................
Statement of Operations 7
................................................................................
Statement of Changes in Net Assets 8
................................................................................
Financial Highlights 9
................................................................................
Notes to Financial Statements 10
................................................................................
Independent Auditors' Report 13
................................................................................
INTERNATIONAL PORTFOLIO
Portfolio of Investments 14
................................................................................
Statement of Assets and Liabilities 17
................................................................................
Statement of Operations 17
................................................................................
Statement of Changes in Net Assets 18
................................................................................
Financial Highlights 18
................................................................................
Notes to Financial Statements 19
................................................................................
Independent Auditors' Report 23
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
This annual report covers the period from the CitiFundsSM International
Growth & Income Portfolio's Commencement of Operations on March 2, 1998 through
October 31, 1998. Inside, we discuss the market conditions faced by the
Portfolio's Subadviser, Hotchkis and Wiley, as well as the strategies it
employed and its outlook for the future.
Much of the reporting period saw a continuation of generally positive
economic conditions in the United States and Europe despite poor economic
performance in the emerging markets and Japan. During the first half of 1998,
broad measures of U.S. and European stock market performance continued to rise.
However, the spreading financial crisis overseas caused stock prices throughout
the world to decline sharply, including both developed and emerging markets.
In our view, recent market volatility once again confirms the benefits of
diversification. By allocating your investment assets among a number of
different geographic regions and markets--including stocks, bonds and money
market securities--you may be able to reduce the effects of heightened
volatility on your overall portfolio. In our view, CitiFunds International
Growth & Income Portfolio can play a valuable role in such a diversified
investment portfolio.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
Philip W. Coolidge
President
November 20, 1998
1
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PORTFOLIO ENVIRONMENT AND OUTLOOK
1998 HAS BEEN A VOLATILE YEAR for the stocks in which CitiFunds International
Growth & Income Portfolio invests. Gains achieved during the second quarter of
1998 were largely retraced in the third quarter before rebounding in October.
The third quarter's weakness was a response to the currency and banking crisis
that began last year in Southeast Asia. When it became clearer this past summer
that spreading global financial problems would affect the earnings of
multinational companies more than most analysts had anticipated, investors
reacted by selling investments that they perceived as vulnerable. As a result,
many international companies doing business in global markets experienced steep
stock price declines.
In Europe, Russia's currency devaluation and effective default on its
government debt triggered a "flight to quality" among investors, who generally
avoided all but the largest and most creditworthy markets and investments. The
prices of fundamentally sound stocks fell when risk-averse investors attempted
to shift their assets away from smaller national markets. As a result, the
largest European markets - including Germany and the U.K. - generally fared
better than smaller markets, such as Italy or Finland. Similarly, Europe saw a
wide disparity in the performance of large-capitalization stocks, which held up
fairly well during the correction, and small-capitalization stocks, which did
not. Finally, investors preferred the stocks of companies able to produce
consistent earnings growth, and tended to avoid the types of value-oriented
stocks in which the Portfolio primarily invests.
Asia's developed markets experienced weakness during the reporting period
because of recessionary conditions throughout the region. Japan's economy
continued to languish in the midst of a longstanding banking crisis, while the
Hong Kong stock market suffered from currency concerns. Markets in natural
resource-producing nations such as Canada, New Zealand and Australia were
negatively affected by lower commodities prices.
WE ATTEMPTED TO ADD VALUE IN THIS DIFFICULT MARKET ENVIRONMENT by allocating
the Portfolio's assets to those regions of the world we expected to perform
best. Accordingly, as of October 31, approximately 78% of the Portfolio's assets
were invested in European stocks, about 15% were in Asian companies and about 3%
were invested in Canada. Within Europe, we have emphasized markets in the United
Kingdom because of the creation of compelling values after the summer
correction, as well as Germany and France. In contrast, we shifted assets away
from markets in Hong Kong, Japan, Canada and Australia over the past six months.
We have also changed the portfolio's mix of industries and market sectors in
response to deteriorating market conditions. We shifted assets to companies that
we consider to be relatively less volatile, including the stocks of
pharmaceutical and telecommunications companies. These companies may be more
likely to maintain their values than other types of value stocks because of the
consistency of their revenue streams. Where we maintained exposure to more
economically
2
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sensitive companies, such as building materials and construction firms, they
have tended to be characterized by strong balance sheets and low valuations.
In our view, many value-oriented stocks are now priced at recessionary
levels. At the same time, many growth-oriented stocks continue to sell at near
the high end of their valuation ranges. We believe that such a large disparity
is unsustainable over the long term. While we cannot predict the timing of a
return to more reasonable price relationships between growth and value stocks,
we are confident that a rebound for value stocks is ahead. Accordingly, we are
maintaining the value-oriented approach that has worked well for us in the past:
buying the stocks of international companies with above-average dividend yields,
and holding them until their true values are reached.
Looking forward over the near term, we are proceeding cautiously because we
may see further global economic weakness in the months ahead. Slower economic
growth worldwide may have negative implications for corporate earnings, leading
to continued volatility in the global stock markets. In the meantime, the stocks
of many strong businesses have become available at low prices relative to
historical levels. What's more, many European companies are continuing to
restructure their operations to become more profitable, and the advent of
European Monetary Union in 1999 is expected to open new markets. When the global
economic turnaround arrives, as we believe it inevitably will, corporate
earnings and valuations should rise. In our view, value-oriented international
stocks may be in an excellent position to lead the global stock markets higher
over the longer term.
FUND FACTS
FUND OBJECTIVE
Current income and long-term growth of income accompanied by growth of capital.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid semi-annually, if any
PORTFOLIO SUBADVISER CAPITAL GAINS
Hotchkis and Wiley Distributed annually, if any
COMMENCEMENT OF OPERATIONS BENCHMARKS
March 2, 1998 o MSCI EAFE Index
NET ASSETS AS OF 10/31/98 o Lipper International Equity Funds
$17.2 million Average
3
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PORTFOLIO HIGHLIGHTS
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INDUSTRIES AS A % OF THE PORTFOLIO AS OF OCTOBER 31, 1998
INDUSTRY % OF COMMON STOCKS
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Banking 14.4%
Miscellaneous 12.1%
Food & Beverages 7.5%
Construction Materials 6.7%
Industrial Machinery 5.3%
Conglomerates 5.2%
Financial Services 4.3%
Telephone 4.3%
Drugs & Healthcare 4.2%
Insurance 3.6%
Gas Exploration 3.2%
Chemicals 3.2%
Electrical Utilities 3.0%
Electronics 2.8%
Paper 2.7%
Real Estate 2.2%
Toys, Amusement & Sporting Goods 1.7%
Steel 1.5%
Household Appliances 1.4%
NonFerrous Metals 1.3%
Mining 1.1%
Retail Trade 1.1%
Business Services 1.0%
Software 1.0%
Automobiles 1.0%
Petroleum Services 0.9%
Railroads & Equipment 0.8%
Apparel & Textiles 0.6%
Broadcasting 0.6%
Agricultural Machinery 0.5%
Auto Parts 0.5%
Air Travel 0.3%
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1998
Great Britain 25.0%
Switzerland 11.0%
Netherlands 8.0%
France 8.0%
Germany 8.0%
Japan 8.0%
Hong Kong 6.0%
Other 26.0%
4
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FUND PERFORMANCE
TOTAL RETURNS
SINCE
FOR THE PERIOD MARCH 2, 1998 3/2/98
(COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998 (INCEPTION)*
================================================================================
CitiFunds International Growth & Income Portfolio (9.60)%
Lipper International Equity Funds Average (4.71)%+
MSCI EAFE Index (1.14)%+
*Not Annualized
+From 2/28/98
GROWTH OF A $10,000 INVESTMENT
CitiFunds International Equity Fund
Lipper International Equity Funds Avg.
MSCI EAFE Index
3/2/98 10000 10000 10000
4/30/98 10394 10655 10640
5/31/98 10346 10666 10550
6/30/98 10426 10584 10330
7/31/98 10535 10737 10130
8/31/98 9232 9204 8660
9/30/98 8951 8871 8250
10/31/98 9886 9530 9040
3/31/98 10310 10511 10500
A $10,000 investment in the Fund made on inception date would have been worth
$9,040 (as of 10/31/98). The graph shows how the Fund compares to its benchmarks
over the same period.
The graph assumes all dividends and distributions from the Fund are reinvested
at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors and reflect certain voluntary fee waivers
which may be terminated at anytime. If the waivers were not in place, the fund's
returns would have been lower.
5
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
Statement of Assets and Liabilities
October 31, 1998
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Assets:
Investment in International Portfolio, at value (Note 1A) $17,162,831
Receivable for shares of beneficial interest sold 8,790
Receivable from Sub-Administrator 17,944
Other assets 44,998
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Total assets 17,234,563
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Liabilities:
Accrued expenses and other liabilities 48,356
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Net Assets for 1,902,066 shares of beneficial interest outstanding $17,186,207
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Net Assets Consist of:
Paid-in capital $19,874,029
Unrealized depreciation (3,394,721)
Accumulated net realized gain 556,257
Undistributed net investment income 150,642
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Total $17,186,207
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Net Asset Value, Offering Price and Redemption Price
Per Share of Beneficial Interest $9.04
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See notes to financial statements
6
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
Investment Income (Note 1B):
Dividend Income from International Portfolio
(net of foreign withholding tax of ($76,163)) $365,449
Interest Income from International Portfolio 13,027
Foreign Tax Reclaims 42,123
Allocated expenses from International Portfolio (118,267)
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$ 302,332
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Expenses:
Distribution fees (Note 3) 30,714
Management fees (Note 2) 30,714
Audit fees 13,450
Shareholder reports 19,577
Transfer agent fees 13,000
Custody and fund accounting fees 9,471
Legal fees 7,204
Registration fees 5,904
Trustees fees 2,170
Other 2,913
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Total expenses 135,117
Less expenses assumed by the Sub-Administrator (18,393)
Less aggregate amount waived by the Manager (Note 2) (30,714)
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Net expenses 86,010
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Net investment income 216,322
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Net Realized and Unrealized Gain (Loss) from
International Portfolio:
Net realized gain 490,577
Unrealized depreciation (3,394,721)
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Net realized and unrealized gain (loss)
from International Portfolio (2,904,144)
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Net Decrease in Net Assets Resulting from Operations ($2,687,822)
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See notes to financial statements
7
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 216,322
Net realized gain 490,577
Unrealized depreciation (3,394,721)
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Net decrease in net assets resulting
from operations (2,687,822)
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TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (Note 5):
Net proceeds from sale of shares 28,257,432
Net asset value of shares issued to shareholders
from reinvestment of distributions --
Cost of shares repurchased (8,383,403)
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Net increase in net assets from transactions
in shares of beneficial interest 19,874,029
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NET INCREASE IN NET ASSETS 17,186,207
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- -------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $150,642) $17,186,207
===============================================================================
See notes to financial statements
8
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
Net Asset Value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.079
Net realized and unrealized loss on investments (1.039)
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Total from operations (0.960)
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Less Distributions From:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total distributions --
Net Asset Value, end of period $9.04
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $17,186
Ratio of expenses to average net assets (A) 1.66%*
Ratio of net investment income to average net assets 1.76%*
Total return (9.60)%**
Note: If Agents of the Fund for the period indicated had not voluntarily waived
a portion of their fees, the net investment income per share and the ratios
would have been as follows:
Net investment income per share $ 0.061
RATIOS:
Expenses to average net assets (A) 2.06%*
Net investment income to average net assets 1.36%*
================================================================================
*Annualized.
**Not Annualized.
(A)Includes the Fund's share of International Portfolio allocated expenses for
the period indicated.
See notes to financial statements
9
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds International Growth & Income Fund
(the "Fund") is a separate diversified series of CitiFunds International Trust
(the "Trust"), a Massachusetts business trust. The Fund commenced operations on
March 2, 1998. The Trust is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company. The Fund currently
invests all of its investable assets in International 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 (7.43% at October 31, 1998) in the net assets
of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
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. At October 31, 1998, the Fund, for federal income tax
purposes, had a capital loss carryover of $575,213 all of which will expire on
October 31, 2006. Such capital loss carryover will reduce the Fund's taxable
income arising from future net realized gain on investment transactions, if any,
to the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal income or excise tax.
D. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
10
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
E. Distributions Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the period ended October
31, 1998, the Fund reclassified $65,680 from undistributed net investment income
to accumulated net gain on investments.
F. OTHER All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs certain
duties and receives compensation from Citibank as from time to time is agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citigroup, Inc.
Citigroup, Inc. was formed as a result of the merger of Citicorp and Travelers
Group, Inc. which was completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.25% of the Fund's average
daily net assets. The management fee amounted to $30,714, all of which was
voluntarily waived for the period March 2, 1998 (Commencement of Operations) to
October 31, 1998.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
3. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, in which the Fund pays
fees for distributions, sales and marketing and shareholder services at an
annual rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $30,714 for the period March 2, 1998 (Commencement
of Operations) to October 31, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the period March 2, 1998 (Commencement of Operations) to
October 31, 1998 aggregated $28,323,743 and $8,514,100, respectively.
11
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
Shares sold 2,743,688
Shares issued to shareholders from reinvestment of distributions --
Shares repurchased (841,622)
- --------------------------------------------------------------------------------
Net increase 1,902,066
================================================================================
12
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CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS INTERNATIONAL TRUST (THE
TRUST):
CITIFUNDS INTERNATIONAL GROWTH &INCOME 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
CitiFunds International Growth &Income Portfolio (the "Fund"), a series of
CitiFunds International Trust, at October 31, 1998, the results of its
operations, the changes in its net assets and the financial highlights for the
period March 2, 1998 (Commencement of Operations) through October 31, 1998, in
conformity with generally accepted accounting principles. 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 audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of investments owned at October 31, 1998 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1998
13
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998
ISSUER SHARES VALUE
================================================================================
COMMON STOCKS -- 97.7%
- --------------------------------------------------------------------------------
AUSTRIA -- 0.7%
- --------------------------------------------------------------------------------
Boehler-Uddeholm 31,283 $ 1,473,878
-----------
AUSTRALIA -- 2.5%
- --------------------------------------------------------------------------------
Australia & New Zealand
Banking Group 658,440 3,768,164
Pioneer International,
Ltd. 641,253 1,331,558
Quantas Airways 391,845 666,616
-----------
5,766,338
-----------
CANADA -- 3.5%
- --------------------------------------------------------------------------------
Canadian Imperial Bank
of Commerce 74,481 1,479,484
Imasco, Ltd. 195,322 3,670,990
Noranda, Inc. 194,180 2,869,283
-----------
8,019,757
-----------
FINLAND -- 1.8%
- --------------------------------------------------------------------------------
The Rauma Group Oy 80,393 949,461
UPM-Kymmene Oy 136,958 3,275,792
-----------
4,225,253
-----------
FRANCE -- 7.8%
- --------------------------------------------------------------------------------
BIC 5,805 357,334
BNP 29,625 1,876,390
Elf Aquitaine 27,480 3,180,338
La Farge Coppee 41,876 4,281,137
Pernod-Ricard 48,514 3,230,832
Societe Generale 22,515 2,978,550
Total 18,520 2,136,705
-----------
18,041,286
-----------
GERMANY -- 7.8%
- --------------------------------------------------------------------------------
Bayer AG 52,245 2,122,601
Buderus AG 5,550 2,308,452
Commerzbank AG 115,367 3,468,323
Draegerwerk AG 124,818 2,034,462
Dyckerhoff AG 10,621 3,269,973
Veba AG 65,255 3,643,880
Vossloh AG 42,454 1,214,802
-----------
18,062,493
-----------
GREAT BRITAIN -- 24.7%
- --------------------------------------------------------------------------------
Allied Domecq 439,115 4,042,206
Allied Zurich 204,154 2,439,683
BOC Group 137,971 2,025,185
BTR 973,360 1,702,422
B.A.T. Industries 258,544 2,322,651
CGU 251,058 3,977,151
Coats Viyella 1,714,716 889,675
Cookson Group 1,183,635 2,476,311
Elementis 1,909,598 3,052,268
Fairview Holdings 66,404 90,857
Hanson 770,119 5,420,025
Hillsdown Holdings 724,318 1,030,447
Lex Service 366,400 2,195,411
Lloyds TSB Group 294,046 3,629,566
Mckenchnie 291,875 1,626,741
Medeva 938,770 1,916,886
National Westminister
Bank 182,171 3,076,435
Powergen 219,116 3,098,904
Safeway 501,006 2,515,600
TI Group 485,515 2,892,877
Terranova Foods 252,434 511,223
Tomkins 1,077,627 4,987,019
Williams 189,685 1,183,390
-----------
57,102,933
-----------
HONG KONG -- 5.7%
- --------------------------------------------------------------------------------
Dao Heng Bank Group 1,423,500 2,968,305
Hang Lung
Development Co. 1,602,635 1,820,941
New World
Development Co. 1,309,790 3,044,057
South China
Morning Post 2,661,486 1,426,103
Swire Pacific 736,000 3,905,694
-----------
13,165,100
-----------
IRELAND -- 2.3%
- --------------------------------------------------------------------------------
Greencore Group 653,730 2,553,798
Jefferson Smurfit Group 1,730,090 2,859,408
-----------
5,413,206
-----------
ITALY -- 3.0%
- --------------------------------------------------------------------------------
Eni Spa 664,100 3,949,239
Telecom Italia 423,000 3,057,272
-----------
7,006,511
-----------
14
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) OCTOBER 31, 1998
ISSUER SHARES VALUE
================================================================================
Koito Manufacturing Co. 394,000 $ 1,605,335
Kyocera Corp. 79,700 3,520,801
Nichicon Corp. 255,000 2,766,984
Nintendo Co. 45,900 3,882,089
Promise Co. 97,100 4,389,406
Yodogawa Steel Works 456,000 1,818,837
-----------
17,983,452
-----------
NETHERLANDS -- 8.0%
- --------------------------------------------------------------------------------
ABN Amro Holdings
NV 124,637 2,334,713
Akzo Nobel NV 93,348 3,627,105
Hollandsche Beton
Groep NV 101,730 1,372,044
ING Groep NV 79,108 3,827,431
KPN NV 61,406 2,385,975
Philips Electronics NV 61,415 3,267,227
TNT Post Groep NV 64,686 1,731,008
-----------
18,545,503
-----------
NEW ZEALAND -- 0.3%
- --------------------------------------------------------------------------------
Fletcher Challenge
Building 608,789 805,960
- --------------------------------------------------------------------------------
Norway -- 2.1%
- --------------------------------------------------------------------------------
Kvaerner ASA 51,377 1,109,383
Nycomed Amersham 508,530 3,625,698
-----------
4,735,081
-----------
Singapore -- 0.8%
- --------------------------------------------------------------------------------
Development Bank of
Singapore 285,360 1,788,431
- --------------------------------------------------------------------------------
Spain -- 3.5%
- --------------------------------------------------------------------------------
Banco Santander SA 207,630 3,802,963
Telefonica SA 93,300 4,212,608
- --------------------------------------------------------------------------------
8,015,571
Sweden -- 3.5%
- --------------------------------------------------------------------------------
Electrolux AB 225,650 3,396,602
Getinge Industrier 201,876 3,103,397
Skandinavifka Enskilda
Banking 153,530 1,553,788
-----------
8,053,787
-----------
SWITZERLAND -- 10.3%
- --------------------------------------------------------------------------------
Forbo Holdings AG 7,311 $ 3,020,851
Nestle SA 1,594 3,387,235
Novartis AG 3,043 5,478,433
Saurer AG 3,994 2,357,559
Schweizerische
Rueckversicherungs-
Gesellschaft AG 1,856 4,130,227
Schweizerische Industrie-
Gesellschaft Holding
AG 4,498 3,020,128
Sulzer AG 4,277 2,461,492
-----------
23,855,925
United States -- 1.6% -----------
- --------------------------------------------------------------------------------
Creative Technology Ltd.* 163,600 2,300,625
Jardine Matheson 492,000 1,377,600
-----------
3,678,225
-----------
TOTAL COMMON STOCKS
(Identified Cost
$233,531,359) 225,738,690
-----------
WARRANTS -- 0.0%
- --------------------------------------------------------------------------------
Bolton Properties*
Exp. 9/15/01
(Identified Cost
$6,808) 23,750 1,231
-----------
SHORT-TERM OBLIGATIONS -- 1.4%
- --------------------------------------------------------------------------------
State Street Repurchase Agreement
4.25% due 11/02/98 proceeds
at maturity $3,259,154
(collateralized by $3,085,000
U.S. Treasury Note 6.25%
due 8/31/02, valued
at $3,324,233) 3,258,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$236,796,167) 99.1% 228,997,921
OTHER ASSETS,
LESS LIABILITIES 0.9 1,948,385
----- ------------
Net Assets 100.0% $230,946,306
===== ============
* Non income producing
See notes to financial statements
15
<PAGE>
INTERNATIONAL PORTFOLIO
FORWARD CURRENCY CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 1998 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
UNREALIZED
MARKET AGGREGATE DELIVERY DATE APPRECIATION
CURRENCY COUNTRY VALUE FACE VALUE OF CONTRACTS (DEPRECIATION)
--------- -------- ------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Dollar (Sell) ..... Hong Kong $6,834,597 $6,603,187 February 1999 $ (231,410)
Dollar (Buy) ...... Hong Kong 6,834,597 6,798,751 February 1999 35,846
Dollar (Sell) ..... Hong Kong 7,143,558 7,125,589 April 1999 (17,969)
----------
$ (213,533)
==========
</TABLE>
16
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
==============================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $236,796,167) $228,997,921
Foreign currency, at value (Cost $599,767) 598,025
Cash 918
Dividends and interest receivable 1,013,973
Receivable for investments sold 1,118,258
Receivable for forward contracts 35,846
- ------------------------------------------------------------------------------
Total assets 231,764,941
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 217,060
Payable for forward contracts 249,379
Payable to affiliates-Management fees (Note 2) 65,295
Accrued expenses and other liabilities 286,901
- ------------------------------------------------------------------------------
Total liabilities 818,635
- ------------------------------------------------------------------------------
NET ASSETS $230,946,306
==============================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $230,946,306
==============================================================================
INTERNATIONAL PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
Investment Income: (Note 1B)
Dividend income (net of foreign withholding
tax of $1,166,799) $6,427,710
Interest income 313,385
- -------------------------------------------------------------------------------
Total investment income $ 6,741,095
- -------------------------------------------------------------------------------
Expenses:
Management fees (Note 2) 2,004,587
Custody and fund accounting fees 346,660
Audit fees 37,413
Legal fees 19,642
Printing 5,594
Trustees fees 4,569
Other 11,816
- -------------------------------------------------------------------------------
Total expenses 2,430,281
- -------------------------------------------------------------------------------
Net investment income 4,310,814
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactio 4,022,805
Net realized loss on foreign exchange
currency & transactions (20,632)
- -------------------------------------------------------------------------------
Net realized gain 4,002,173
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments, forward currency
contracts, foreign currency transactions (8,003,050)
Less: unrealized appreciation from
contributed assets (Note 1) 12,088,710
- -------------------------------------------------------------------------------
Unrealized depreciation of investments (20,091,760)
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) of investments (16,089,587)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(11,778,773)
===============================================================================
See notes to financial statements
17
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 4,310,814
Net realized gain on investment transactions, forward currency
contracts, foreign currency transactions 4,002,173
Unrealized depreciation of investments (20,091,760)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (11,778,773)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 593,863,296
Value of withdrawals (351,138,217)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 242,725,079
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 230,946,306
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $230,946,306
- --------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD NOVEMBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $230,946
Ratio of expenses to average net assets 0.97%
Ratio of net investment income to average net assets 1.72%
Portfolio turnover 43%
- --------------------------------------------------------------------------------
See notes to financial statements
18
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies International Portfolio (the "Portfolio"), a
separate series of The Asset Allocation Portfolios (the "Portfolio Trust"), is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator. On
November 1, 1997 (Commencement of Operations) the CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 each
transferred a portion of their investable assets in the amount of $13,468,512,
$45,037,659, $115,488,801 and $69,902,939 including $657,730, $2,460,410,
$6,297,679 and $2,672,891, respectively, of unrealized appreciation to the
Portfolio in exchange for an interest in the Portfolio.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities are valued at the last
sale price on the exchange on which they are primarily traded, or at the quoted
bid price for securities in which there were no sales during the day, or for
unlisted securities not reported on the NASDAQ system. Securities listed on a
foreign exchange are valued at the last quoted sale price available. Bonds,
foreignbonds and other fixed income securities (other than short-term
obligations maturing in sixty days or less) are valued on the basis of
valuations furnished by a pricing service, the use of which has been approved by
the Board of Trustees. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive reliance
upon quoted prices or exchanges or over-the-counter prices. Short-term
obligations maturing in sixty days or less are valued at amortized cost which
constitutes fair value as determined by the Trustees. Portfolio securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the time when the Portfolio's
net
19
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
asset value is calculated, such securities may be valued at fair value in
accordance with procedures established by and under the general supervision of
the Trustees.
B. INCOMe Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on debt securities when
required for U.S. federal income tax purposes. Dividend income and other
distributions from investments are recorded on the ex-dividend date. Dividend
and interest income is recorded net of foreign taxes withheld. Reclaims of
recoverable foreign taxes are the responsibility of the qualified investors.
C. FOREIGN CURRENCY TRANSLATION The accounting records of the Portfolio are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars at the current rate of exchange to determine the value of investments,
assets and liabilities. Purchases and sales of securities, as well as income and
expenses, are translated at the prevailing rate of exchange on the respective
dates of such transactions. The Portfolio does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuation arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Translations of foreign currency
includes net exchange gains and losses, disposition of foreign currency and the
difference between the amount of investment income and expenses recorded and the
amount actually received or paid.
D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio may enter into forward
foreign currency contracts ("contracts") in connection with planned purchases or
sales of securities, to hedge the U.S. dollar value of portfolio securities
denominated in a particular currency. The Portfolio could be exposed to risks if
the counter-parties to the contracts are unable to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized gains or
losses until the contract settlement date.
E. U.S. FEDERAL TAXES The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
F. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
G. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
20
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG.
Citibank has delegated the daily management of the Portfolio to Hotchkis and
Wiley (the "Subadviser"). Citibank is a wholly-owned subsidiary of Citigroup,
Inc. Citigroup, Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc. which was completed on October 8, 1998.
The management fee paid to Citibank, amounted to $922,580 for the period
November 1, 1997 (Commencement of Operations) to October 31, 1998. Management
fees are computed at the annual rate of 0.80% of the Portfolio's average daily
net assets less the aggregate amount (if any) payable by the Portfolio Trust
pursuant to the Sub-management Agreement with the Subadviser. The Portfolio pays
the Subadviser the following fees, which are accrued daily and payable monthly
and are at the annual rates equal to a percentage of the aggregate assets of the
Portfolio allocated to the Subadviser: 0.60% on first $10 million, 0.55% on next
$40 million, 0.45% on next $100 million, 0.35% on next $150 million, 0.30% on
remaining assets.
The management fees paid to the Subadviser amounted to $1,082,007 for the
year ended October 31, 1998.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $114,456,273 and $105,252,733,
respectively, for the period November 1, 1997 (Commencement of Operations) to
October 31, 1998.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1998,
as computed on a federal income tax basis, are as follows:
Aggregate cost $236,845,911
================================================================================
Gross unrealized appreciation $ 25,968,967
Gross unrealized depreciation (33,816,957)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(7,847,990)
================================================================================
21
<PAGE>
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
5. Line of Credit The Portfolio, along with other CitiFunds, entered into an
ongoing agreement with a bank which allows the Funds collectively to borrow up
to $60 million for temporary or emergency purposes. Interest on the borrowings,
if any, is charged to the specific fund executing the borrowing at the base rate
of the bank. The line of credit requires a quarterly payment of a commitment fee
based on the average daily unused portion of the line of credit. For the period
November 1, 1997 (Commencement of Operations) to October 31, 1998, the
commitment fee allocated to the Portfolio was $834. Since the line of credit was
established, there have been no borrowings.
22
<PAGE>
INTERNATIONAL PORTFOLIO
Independent Auditors' Report
TO THE TRUSTEES AND INVESTORS OF THE ASSET ALLOCATION PORTFOLIO (THE TRUST),
WITH RESPECT TO ITS SERIES, INTERNATIONAL PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of International Portfolio (the
"Portfolio"), a series of The Asset Allocation Portfolios, as at October 31,
1998 and the related statements of operations and of changes in net assets and
the financial highlights for the period March 2, 1998 (Commencement of
Operations) through October 31, 1998. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform 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 audit, which included confirmation of investments owned as
at October 31, 1998 by correspondence with the custodian and brokers, provides a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1998, the
results of its operations and the changes in its net assets and the financial
highlights for the period March 2, 1998 (Commencement of Operations) through
October 31, 1998 in accordance with U.S. generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1998
23
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, PRESIDENT
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street,Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
Growth with Income
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(C) 1998 CitiCorp [Logo] Printed on recycled paper CFA/IGI/10981998
