Balanced Portfolio
PORTFOLIO OF INVESTMENTS December 31, 1998
Issuer Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 57.7%
- --------------------------------------------------------------------------------
Basic Industries -- 5.4%
- --------------------------------------------------------------------------------
Barrick Gold Corp. 111,000 $ 2,164,500
Dow Chemical Co. 15,300 1,391,344
Mead Corp. 75,900 2,224,819
Philip Morris Inc. 83,400 4,461,900
Premark International Inc. 25,500 882,937
Union Pacific Corp. 72,700 3,276,044
------------
14,401,544
------------
Consumer Durables -- 5.6%
- --------------------------------------------------------------------------------
American Home
Products Corp. 60,800 3,423,800
Applied Materials Inc. 36,250 1,547,422
Dana Corp. 89,000 3,637,875
Goodyear Tire and Rubber 41,300 2,083,069
Meritor Automotive Inc. 71,519 1,515,309
Sunbeam Corp. 374,100 2,618,700
------------
14,826,175
------------
Consumer Non-Durables -- 2.3%
- --------------------------------------------------------------------------------
Federated Dept. Stores Inc. * 34,000 1,481,125
New York Times Co. 44,700 1,550,531
Tommy Hilfiger Corp. 34,850 2,091,000
Toys "R" Us Inc. * 57,800 975,375
------------
6,098,031
------------
Consumer Services -- 9.4%
- --------------------------------------------------------------------------------
AT&T Corp. 114,300 8,601,075
Bell Atlantic Corp. 52,600 2,787,800
McDonalds Corp. 46,900 3,593,712
Public Service
Enterprise Group 34,600 1,384,000
SBC Communications Inc. 75,500 4,048,688
Texas Utilities Co. 30,000 1,400,625
Transocean Offshore Inc. 19,000 509,437
Walt Disney Co. 87,065 2,611,950
------------
24,937,287
------------
Electronics/Technical Services -- 4.5%
- --------------------------------------------------------------------------------
Compaq Computer Corp. 60,000 2,516,250
Hewlett Packard Co. 27,100 1,851,269
Honeywell Inc. 37,700 2,839,281
International Business
Machines 14,400 2,660,400
Sun Microsystems Inc. 24,700 2,114,937
------------
11,982,137
------------
Finance -- 15.9%
- --------------------------------------------------------------------------------
Bank One Corp. 85,000 $ 4,340,312
Bankamerica Corp. 62,400 3,751,800
Burlington Resources Inc. 83,500 2,990,344
Chase Manhattan Corp. 87,600 5,962,275
Comed Financing 55,000 1,392,187
Everest Reinsurance
Holdings 71,400 2,780,138
Franklin Resources Inc. 37,200 1,190,400
J. P. Morgan Co. Inc. 31,400 3,298,963
Mellon Bank Corp. 46,800 3,217,500
Morgan Stanley
Dean Witter 81,780 5,806,380
Safeco Corp. 108,000 4,637,250
Washington Mutual Inc. 76,400 2,917,525
------------
42,285,074
------------
Health Services/Technology -- 2.4%
- --------------------------------------------------------------------------------
Oxford Health Plans Inc. * 242,400 3,605,700
Wellpoint Health
Networks Inc. --
Class A * 30,800 2,679,600
------------
6,285,300
------------
Industrial Services -- 1.0%
- --------------------------------------------------------------------------------
USA Waste Services Inc. 54,800 2,555,050
------------
Producer Manufacturing -- 8.2%
- --------------------------------------------------------------------------------
Amerada Hess Corp. 58,300 2,900,425
American Electric Power Inc. 41,000 1,929,563
Cinergy Corp. 56,300 1,935,313
Diamond Offshore
Drilling Inc. 22,200 525,862
Entergy Corp. 70,500 2,194,312
Exxon Corp. 59,200 4,329,000
Halliburton Co. 104,000 3,081,000
Mobil Corp. 54,300 4,730,887
------------
21,626,362
------------
Miscellaneous -- 3.0%
- --------------------------------------------------------------------------------
Martin Marietta
Materials Inc. 69,100 4,297,156
Raytheon Co. 67,170 3,576,803
------------
7,873,959
------------
Total Common Stock
(Identified Cost $142,683,580) 152,870,919
------------
14
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
FIXED INCOME -- 41.9%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- 9.4%
- --------------------------------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $1,040,000 $ 1,054,352
Asset Securitization
Corp. Series 95
7.10% due 8/13/29 513,766 546,816
7.384% due 8/13/29 2,500,000 2,714,150
Asset Securitization
Corp. Series 97
6.85% due 2/14/41 600,000 642,348
Commercial Mortgage
Acceptance Corp.
5.80% due 5/15/06 541,779 539,807
Contimortgage Home
Equity Loan
6.13% due 3/15/13 1,100,000 1,102,398
GMAC Commercial
Mortgage
6.42% due 8/15/08 1,100,000 1,139,578
6.83% due 12/15/03 1,884,376 1,933,501
Green Tree
Financial Corp.
6.71% due 8/15/29 1,050,000 1,063,083
8.05% due 10/15/27 3,500,000 3,770,130
IMC Home Equity Loan
6.16 % due 5/20/14 2,000,000 2,004,500
J. P. Morgan Co. Inc.
6.373% due 1/15/30 709,332 721,895
Lehman Brothers
First Union
6.479% due 3/18/04 891,766 906,641
Merrill Lynch
Mortgage Co.
6.95% due 6/18/29 1,326,724 1,378,811
Morgan Stanley
Capital Investment Inc.
6.44% due 11/15/02 1,105,000 1,129,763
Nomura Asset
Securitization Corp.
8.15% due 3/04/20 2,000,000 2,242,120
Structured Asset
Securities Corp.
6.79% due 6/12/04 1,850,033 1,929,066
------------
24,818,959
------------
DOMESTIC CORPORATIONS -- 10.9%
- --------------------------------------------------------------------------------
Allstate Corp.
6.75% due 5/15/18 700,000 727,531
Associates Corp. N.A.
5.96% due 5/15/37 1,750,000 1,795,477
Atlantic City Electric Co.
7.01% due 8/23/02 1,380,000 1,449,124
BB & T Corp.
6.375% due 6/30/05 1,400,000 1,429,596
Century
Telecommunications
Enterprises Inc.
6.30% due 1/15/08 1,000,000 1,028,020
Conseco Inc.
6.40% due 6/15/01 850,000 818,873
Dayton Hudson Corp.
5.95% due 6/15/00 585,000 589,697
Ericcson Telephone
6.75% due 2/12/02 635,000 664,214
Equitable Life Assurance
6.95% due 12/01/05 700,000 742,078
Ford Motor Co.
6.50% due 8/01/18 1,390,000 1,424,083
GTE Corp.
6.36% due 4/15/06 1,000,000 1,046,210
Hartford Financial
Services Group, Inc.
6.375% due 11/01/08 445,000 457,215
Household Financial Corp.
6.50% due 11/15/08 700,000 728,364
Lucent Technologies Inc.
5.50% due 11/15/08 695,000 702,462
MCI Communications
Corp.
6.125% due 4/15/02 1,000,000 1,015,220
Mattel Inc.
6.00% due 7/15/03 765,000 772,428
Mellon Financial Co.
5.75% due 11/15/03 700,000 704,851
Merrill Lynch & Co. Inc.
6.00% due 11/15/04 600,000 602,118
National Rural Utilities
6.20% due 2/01/08 1,000,000 1,038,970
Nationsbank Corp.
6.375% due 5/15/05 700,000 727,615
Norfolk Southern Corp.
6.95% due 5/01/02 1,475,000 1,532,938
Occidental Petroleum
Corp.
6.40% due 4/01/03 515,000 506,848
Petroleum Geographical
Services
6.625% due 3/30/08 735,000 717,514
Philadelphia Electric
Company
7.125% due 9/01/02 370,000 387,926
6.625% due 3/01/03 715,000 740,282
15
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
Raytheon Co.
6.30% due 3/15/05 $1,000,000 $ 1,024,990
Sears Roebuck
Acceptance Corp.
5.25% due 10/16/08 1,110,000 1,087,445
Suntrust Banks Inc.
6.00% due 01/15/28 975,000 996,333
TCI Communications Inc.
6.875% due 02/15/06 940,000 1,003,046
USA Waste Services
6.50% due 12/15/02 1,000,000 1,016,110
Walt Disney Co.
5.125% due 12/15/03 870,000 865,180
6.75% due 3/30/06 455,000 492,374
------------
28,835,132
------------
MORTGAGE OBLIGATIONS -- 5.2%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations -- 0.5%
- --------------------------------------------------------------------------------
Country Wide
Mortgage Backed
Securities
7.50% due 9/25/14 395,431 394,810
PNC Mortgage
Securities Corp.
6.392% due 9/25/13 338,845 328,605
Residential Asset
Securitization Trust
7.00% due 2/25/08 607,546 608,111
------------
1,331,526
------------
Mortgage Backed Securities/
Passthroughs -- 4.7%
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.25% due 6/15/24 860,000 865,951
8.50% due 6/01/01 9,586 9,723
9.50% due 2/01/01 5,084 5,158
Federal National
Mortgage Association
6.00% due 12/01/99 TBA 790,000 778,397
6.50% due 12/01/99 TBA 2,050,000 2,063,448
7.349% due 8/17/21 600,000 655,332
7.50% due 12/01/99 TBA 3,000,000 3,081,540
7.50% due 10/01/25 147,787 151,850
7.50% due 11/01/25 2,292,144 2,355,155
9.00% due 11/01/01 7,148 7,290
Government National
Mortgage Association
7.25% due 10/16/22 2,577,566 2,587,232
------------
12,561,076
------------
Total Mortgage Obligations 13,892,602
------------
YANKEE BONDS -- 2.0%
- --------------------------------------------------------------------------------
British Columbia
Province, Canada
5.375 % due 10/29/08 $ 750,000 $ 748,545
Interamerica
Development Bank
6.95% due 8/01/26 2,000,000 2,242,180
Manitoba Province,
Canada
5.50 % due 10/01/08 750,000 758,400
Ontario Province, Canada
5.500 % due 10/01/08 750,000 752,887
Republic of Ireland
6.875% due 3/10/03 665,000 703,237
------------
5,205,249
------------
UNITED STATES GOVERNMENT &
AGENCY OBLIGATIONS -- 14.4%
- --------------------------------------------------------------------------------
United States Treasury Bonds -- 2.6%
- --------------------------------------------------------------------------------
6.625% due 2/15/27 5,000,000 5,914,050
3.625% due 4/15/28 983,473 953,969
------------
6,868,019
------------
United States Treasury Notes -- 7.8%
- --------------------------------------------------------------------------------
5.875% due 11/15/99 170,000 171,753
6.00% due 6/30/99 3,425,000 3,448,530
5.50% due 12/31/00 3,680,000 3,741,530
6.625% due 6/30/01 5,300,000 5,544,277
6.625% due 4/30/02 2,500,000 2,645,700
5.875% due 2/15/04 5,000,000 5,275,000
------------
20,826,790
------------
United States Agency Obligations -- 4.0%
- --------------------------------------------------------------------------------
Federal National
Mortgage Association
5.49% due 8/18/00 5,000,000 5,039,050
Federal National
Mortgage Association
6.00% due 5/15/08 3,500,000 3,694,670
Tennessee Valley
Authority
5.88% due 4/01/36 1,750,000 1,856,995
------------
10,590,715
------------
Total United States
Government &
Agency Obligations 38,285,524
------------
Total Fixed Income
(Identified Cost
$108,358,844) 111,037,466
------------
16
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
Principal
Issuer Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 2.0%
- --------------------------------------------------------------------------------
FCC National Bank
5.68% due 6/03/99 $ 2,005,000
Federal Home Loan
Mortgage Discount
Notes
4.50% due 01/04/99 3,280,769
United States
Treasury Bills
4.36% due 06/24/99 93,033
------------
Total Short-Term Obligations
(Identified Cost
$5,373,205) 5,378,802
------------
Value
- --------------------------------------------------------------------------------
Total Investments
(Identified Cost
$256,415,629) 101.6% $269,287,187
Other Assets,
Less Liabilities (1.6) (4,163,323)
----- ------------
Net Assets 100.0% $265,123,864
===== ============
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Futures contracts which were open at December 31, 1998 are as follows:
Aggregate
Number of Face Value Expiration Unrealized
Contracts Of Contracts Date Gain/loss
- --------------------------------------------------------------------------------
U. S. Long
Bond March
(Sell) 40 $4,000,000 1999 $69,075
*Non-income producing
See notes to financial statements
17
<PAGE>
Balanced Portfolio
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
================================================================================
Assets:
Investments at value (Note 1A) (Identified Cost, $256,415,629) $269,287,187
Cash 1,583
Receivable for investments sold 342,068
Dividends and interest receivable 1,523,456
Receivable for daily variation on future contracts 5,000
- --------------------------------------------------------------------------------
Total assets 271,159,294
- --------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 5,913,147
Payable to affiliates-Investment advisory fees (Note 2) 88,911
Accrued expenses and other liabilities 33,372
- --------------------------------------------------------------------------------
Total liabilities 6,035,430
- --------------------------------------------------------------------------------
Net Assets $265,123,864
================================================================================
Represented by:
Paid-in capital for beneficial interests $265,123,864
================================================================================
Balanced Portfolio
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
================================================================================
Investment Income:
Interest $6,600,988
Dividends 2,760,044
- --------------------------------------------------------------------------------
$9,361,032
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 1,030,889
Administrative fees (Note 3) 128,861
Expense fees (Note 6) 257,639
- --------------------------------------------------------------------------------
Total expenses 1,417,389
- --------------------------------------------------------------------------------
Net investment income 7,943,643
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions 29,623,534
Net realized gains from futures contracts 102,937
Unrealized depreciation of investments and
futures contracts (17,148,033)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and futures contracts 12,578,438
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $20,522,081
================================================================================
See notes to financial statements
18
<PAGE>
Balanced Portfolio
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
-----------------------
1998 1997
================================================================================
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 7,943,643 $ 7,239,807
Net realized gain from investment transactions
and futures contracts 29,726,471 34,083,761
Unrealized appreciation (depreciation)
of investments and futures contracts (17,148,033) 6,996,049
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 20,522,081 48,319,617
- --------------------------------------------------------------------------------
Capital Transactions:
Proceeds from contributions 17,030,280 7,417,240
Value of withdrawals (23,622,833) (52,068,589)
- --------------------------------------------------------------------------------
Net decrease in net assets from capital transactions (6,592,553) (44,651,349)
- --------------------------------------------------------------------------------
Net Increase in Net Assets 13,929,528 3,668,268
- --------------------------------------------------------------------------------
Net Assets:
Beginning of period 251,194,336 247,526,068
- --------------------------------------------------------------------------------
End of period $265,123,864 $251,194,336
================================================================================
Balanced Portfolio
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
May 1, 1994
(Commencement
Year Ended December 31, of Operations) to
------------------------------------------ December 31,
1998 1997 1996 1995 1994
===========================================================================================
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net Assets, end of period
(000's omitted) $265,124 $251,194 $247,526 $251,519 $228,948
Ratio of expenses to
average net assets 0.55% 0.55% 0.55% 0.53% 0.51%*
Ratio of net investment
income to average
net assets 3.08% 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover 133% 134% 241% 210% 105%
===========================================================================================
</TABLE>
* Annualized
See notes to financial statements
19
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies Balanced Portfolio (the "Portfolio"), a
separate series of The Premium Portfolios (the "Portfolio Trust"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Adviser of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Administrator. Citibank is a wholly-owned
subsidiary of Citigroup, Inc.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations maturing in sixty
days or less are valued at amortized cost, which approximates market value.
Securities, if any, for which there are no such valuations or quotations are
valued at fair value as determined in good faith by or under guidelines
established by the Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for federal income tax purposes. Gain and loss from principal
paydowns are recorded as interest income. Dividend income is recorded on the
ex-dividend date.
C. U.S. Federal Taxes The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
D. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
20
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Continued)
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.
F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
G. Futures Contracts The Portfolio may engage in futures transactions.The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. The underlying value of a futures contract is incorporated
within unrealized appreciation/depreciation in the Portfolio of Investments
under the caption "Futures Contracts". Buying futures contracts tends to
increase the Portfolio's exposure to the underlying instrument.Selling futures
contracts tends to either decrease the Portfolio's exposure to the underlying
instrument, or to hedge other Portfolio investments.
Upon entering into a futures contract, the Portfolio is required to deposit
with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin".
Subsequent payments ("variation margin") are made or received by the Portfolio
each day, depending on the daily fluctuation of the value of the contract.The
daily changes in contract value are recorded as unrealized gains or losses and
the Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the
21
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS
settlement price established by the board of trade or exchange on which they are
traded.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities.
H. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. Investment Advisory Fees The investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $1,030,889
for the year ended December 31, 1998. The investment advisory fees are computed
at the annual rate of 0.40% of the Portfolio's average daily net assets.
3. Administrative Fees Under the terms of an Administrative Services Agreement,
the administrative fees paid to the Administrator, as compensation for overall
administrative services and general office facilities, is computed at an annual
rate of 0.05% of the Portfolio's average daily net assets. The Administrative
fees amounted to $128,861 for the year ended December 31, 1998. Citibank acts as
Sub-Administrator and performs certain duties and receives compensation from SFG
from time to time as agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
4. Purchases And Sales Of Investments Purchases and sales of investments, other
than short-term obligations, aggregated $404,555,392 and $395,631,379,
respectively, for the year ended December 31, 1998. Purchases and sales of U.S.
Government securities aggregated to $94,130,487 and $89,398,388, respectively.
5. Federal Income Tax Basis Of Investments The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at December 31, 1998,
as computed on a federal income tax basis, are as follows:
Aggregate cost $256,507,514
================================================================================
Gross unrealized appreciation $ 21,418,237
Gross unrealized depreciation (8,638,564)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 12,779,673
================================================================================
22
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Expense Fees SFG has entered into an expense agreement with the Portfolio.
SFG has agreed to pay all of the ordinary operating expenses (excluding
interest, taxes, brokerage commissions litigation costs or other extraordinary
costs or expenses) of the Portfolio, other than fees paid under the Advisory
Agreement and Administrative Services Agreement. The Agreement may be terminated
by either party upon not less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis,
accrued daily and paid monthly; provided, however, that such fee shall not
exceed the amount such that immediately after any such payment the aggregate
ordinary expenses of the Portfolio less expenses waived by the Administrator
would, on an annual basis, exceed an agreed upon rate, currently 0.55% of
average daily net assets.
7. Line of Credit The Portfolio, along with the other Portfolios in the
CitiFunds Family, has entered into an ongoing agreement with a bank which allows
the Funds collectively to borrow up to $60 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific fund
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the year ended December 31, 1998, the
commitment fee allocated to the Portfolio was $858. Since the line of credit was
established, there have been no borrowings.
8. Subsequent Event Effective January 1, 1999 the expense fee agreement has been
terminated between the Portfolio and SFG.
23
<PAGE>
Balanced Portfolio
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of The Premium Portfolios (the Trust), with
respect to its series, Balanced Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Balanced Portfolio (the "Portfolio"),
a series of The Premium Portfolios, as at December 31, 1998, and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereinafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also incudes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at December 31, 1998, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
February 12, 1999
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