INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS December 31, 1998
- --------------------------------------------------------------------------------
ISSUER/INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS AND
PREFERRED RIGHTS--98.6%
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS/
ADR'S--1.7%
- --------------------------------------------------------------------------------
Lukoil Co.
Energy Sources 3,300 $ 51,975
Magyar Olaj -Es Gazipari
Energy Sources 7,400 204,425
Matav RT
Telecommunications 7,200 214,650
Telecom Argentina SA
Telecommunications 6,700 184,250
--------
655,300
--------
AUSTRALIA--1.1%
- --------------------------------------------------------------------------------
Australia & New Zealand Bank
Banking 6,895 45,124
Brambles Industrial Ltd.
Business Services 2,620 63,818
Broken Hill Proprietary
Energy Sources 4,629 34,093
Colonial Ltd.
Banking 12,192 41,838
Lend Lease Corp.
Real Estate 5,132 69,186
News Corp.
Broadcasting 8,455 55,852
North Ltd.
Non-Ferrous Metals 13,059 21,286
Publishing & Broadcasting Ltd.
Broadcasting 7,486 32,707
Woodside Petroleum Co. Ltd.
Energy Sources 7,316 32,727
--------
396,631
--------
BELGIUM -- 1.0%
- --------------------------------------------------------------------------------
Electrabel
Electric & Gas Utilities 531 231,938
KBC Bankverzekerin NPV
Banking 1,758 138,321
--------
370,259
--------
BRAZIL--0.5%
- --------------------------------------------------------------------------------
Light Servicos de Electricid
Electrical & Gas Utilities 612,000 74,455
Telecommunicacoes
de Sao Paolo
Preferred Rights
Telecommunications 706,407 96,289
Telecommunicacoes
de Sao Paolo
Celular -Preferred B
Telecommunications 674,698 29,650
--------
200,394
--------
FINLAND--1.2%
- --------------------------------------------------------------------------------
Nokia AB
Electrical & Electronics 3,741 454,877
--------
FRANCE--10.3%
- --------------------------------------------------------------------------------
AXA-UAP
Insurance 2,083 301,776
BQE National Paris
Banking 1,890 155,568
Bouygues
Homebuilders 601 123,833
Canal Plus
Broadcasting 637 173,748
Carrefour
Retailing 283 213,553
Casino
Retailing 1,165 121,272
Cie de St Gobain
Containers & Glass 834 117,694
Groupe Danone
Food & Household Products 752 215,203
France Telecom
Telephone Utilities 5,106 405,485
Lafarge
Building Materials 1,536 145,880
Legrand
Electrical & Electronics 497 131,650
L'oreal
Pharmaceuticals & Health 513 370,689
Pinault-Printemps
Retailing 1,174 224,259
Sanofi
Pharmaceuticals & Health 807 132,792
Societe Nationale/Elf Aquitaine
Energy Sources 1,557 179,900
Suez Lyonnaise des Eaux
Business & Public Services 1,273 261,385
Total SA - Class B
Energy Sources 1,886 190,928
Vivendi
Business & Public Services 1,420 368,270
----------
3,833,885
----------
15
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
ISSUER/INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
GERMANY--9.0%
- --------------------------------------------------------------------------------
Allianz AG
Insurance 1,647 $603,814
Basf AG
Chemicals 2,872 109,600
Bayer AG
Chemicals 3,015 125,821
Bayer Vereinsbank AG
Banking 1,671 130,844
Continental AG
Industrial Components 4,880 134,693
Daimler/Chrysler AG
Automobiles 5,251 518,294
Deutsche Bank AG
Banking 1,598 94,014
Deutsche Telekom AG
Telephone Utilities 13,138 431,995
Mannesmann AG
Telecommunications 1,345 154,143
Muenchener
Rueckversicherungs AG
Insurance 463 224,194
SAP AG -Preferred Rights
Data Processing
& Reproduction 271 129,305
Siemens AG
Electrical Equipment 3,214 207,311
Veba AG
Electrical & Gas Utilities 2,332 139,506
Viag AG
Electrical & Gas Utilities 267 156,522
Volkswagen AG
Automobiles 2,319 185,064
----------
3,345,120
----------
HONG KONG--0.6%
- --------------------------------------------------------------------------------
CLP Holdings
Electrical & Gas Utilities 20,000 99,644
Hutchinson Whampoa Ltd.
Multi-Industry 17,000 120,134
----------
219,778
----------
ITALY--6.0%
- --------------------------------------------------------------------------------
Assicurazioni Generali Spa
Insurance 8,616 359,554
Ente Nazionale Idrocarburi
Energy Sources 21,660 141,479
Italcementi
Building Materials 16,401 180,530
Mediaset
Broadcasting 20,231 163,957
Olivetti Spa*
Telecommunications 55,006 191,288
Rinascente
Retailing 16,172 166,224
San Paolo Imi Spa
Banking 16,755 295,894
Telecom Italia
Telecommunications 40,106 295,923
Telecom Italia Mobile Spa
Telecommunications 23,233 198,122
Unicredito Italian
Banking 37,812 223,997
----------
2,216,968
----------
JAPAN--21.2%
- --------------------------------------------------------------------------------
Advantest
Electronics 1,000 63,335
Alps Electric Co.
Electronics 2,000 36,709
Asahi Breweries
Food & Household
Products 5,000 73,640
Bank of Tokyo Mitsubishi
Banking 49,000 507,121
Bridgestone Corp.
Industrial Components 9,000 204,202
Canon Inc.
Photography 9,000 192,260
Chiyoda Chemical Corp.*
Machinery & Engineering 2,000 3,804
Daiei Inc.
Retailing 7,000 19,009
Daikyo Kanko Inc. *
Real Estate 2,000 2,406
Denso Corp.
Auto Parts 9,000 166,387
East Japan Railway
Railroads & Equipment 41 228,846
Ebara Corp.
Machinery & Engineering 3,000 25,820
Fanuc
Electronics 3,000 102,698
Fujita Kando Inc.
Business & Public Services 1,000 8,872
Fujitsu Ltd.
Data Processing &
Reproduction 20,000 266,254
16
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS December 31, 1998
ISSUER/INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
Hankyu Corp.
Railroads & Equipment 9,000 $ 39,487
Haseko Corp. *
Homebuilders 4,000 2,017
Hazama Gumi Corp.*
Homebuilders 3,000 1,964
Hirose Electric
Electronics 1,000 69,969
Honda Motor Co. Ltd.
Automobiles 10,000 328,173
Hoya Corp.
Pharmaceuticals & Health 1,000 48,651
Isetan Co.
Retailing 2,000 21,442
Ito Yokado Co.
Retailing 4,000 279,522
Japan Air Lines Co.
Air Travel 19,000 50,084
Japan Metal & Chemical*
Steel 1,000 1,636
Jusco Co.
Retailing 3,000 60,637
Kanebo*
Apparel & Textiles 5,000 4,954
Kao Corp.
Food & Household
Products 7,000 157,895
Kawasaki Heavy Industries
Machinery & Engineering 15,000 35,161
Kinki Nippon Railway
Railroads & Equipment 17,000 90,977
Kumagai Gumi Co.*
Building Materials 7,000 5,387
Kurita Water Industrial
Business Services 1,000 14,666
Minebea Co.
Machinery & Engineering 4,000 45,785
Mitsui Mining & Smelting Co.
Non-Ferrous Metals 5,000 24,635
Mitsukoshi
Retailing 5,000 13,268
Murata Manufacture Co.
Electronics 3,000 124,458
NGK Insulators
Electrical & Electronics 4,000 51,552
Nankai Electrical Railway
Railroads & Equipment 6,000 30,199
Nippon Express Co.
Trucking & Freight 11,000 61,884
Nippon Telegraph &
Telephone Co.
Telephone Utilities 132 1,018,169
Odakyu Electrical Railway
Railroads & Equipment 8,000 27,952
Okuma Corp.
Machinery & Engineering 1,000 5,201
Osaka Gas Co. Ltd.
Electrical & Gas Utilities 26,000 89,465
Rohm Co.
Electronics 1,000 91,022
Sankyo Co. Ltd.
Pharmaceuticals & Health 5,000 109,244
Sanrio Co. *
Retailing 1,000 12,906
Secom Co.
Business Services 1,000 82,795
Seiyu
Apparel & Textiles 2,000 5,874
77th Bank
Banking 4,000 39,982
SMC Corp.
Machinery & Engineering 1,000 79,788
Shimano Inc.
Business & Public Services 1,000 25,785
Shizuoka Bank
Banking 8,000 98,717
Sony Corp.
Household Appliances 4,000 291,199
Sumitomo Chemical
Chemicals 17,000 66,165
Sumitomo Heavy Industries
Machinery & Engineering 6,000 12,525
Sumitomo Marine & Fire
Insurance 7,000 44,334
Taisho Pharmacy Co.
Pharmaceuticals & Health 4,000 110,040
Takeda Chemical Industry
Pharmaceuticals & Health 9,000 346,307
Tobu Railway Co.
Railroads & Equipment 9,000 26,272
Tokyo Electronic Power
Electric & Gas Utilities 14,000 345,511
Tokyo Electronics
Electronics 2,000 75,896
Tokyo Marine & Fire Insurance
Insurance 16,000 191,066
Toyoda Automobile Loom
Machinery & Engineering 3,000 53,047
17
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) December 31, 1998
ISSUER/INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
Toyota Motor Corp.
Automobiles 39,000 $1,059,089
Uni Charm Corp.
Food & Household
Products 1,000 46,883
Unitika*
Chemicals 5,000 3,450
Yamato Transportation
Trucking & Freight 4,000 55,904
----------
7,880,354
----------
MEXICO--0.0%
- --------------------------------------------------------------------------------
Grupo Carso - Series A
Multi-Industry 3,200 10,869
----------
NETHERLANDS--3.9%
- --------------------------------------------------------------------------------
Ahold NV
Retailing 5,461 201,732
Heineken NV
Beverage & Tobacco 2,269 136,476
ING Groep NV
Financial Services 5,469 333,316
Royal Dutch Petroleum
Energy Sources 9,706 483,052
Unilever NV
Food & Household
Products 3,283 280,471
----------
1,435,047
----------
PORTUGAL--0.8%
- --------------------------------------------------------------------------------
Banco Commercial Portuguese
Banking 5,623 172,952
Cimpor Cimentos
De Portugal
Building Materials 3,386 108,135
----------
281,087
----------
SINGAPORE--0.5%
- --------------------------------------------------------------------------------
Singapore Press Holding
Publishing 9,000 98,122
Singapore Telecomm
Telecommunications 50,000 76,318
----------
174,440
----------
SPAIN--4.7%
- --------------------------------------------------------------------------------
AC Acciona SA
Homebuilders 3,966 323,430
Argentaria Corp. Bancaria
de Espana
Banking 5,289 136,765
BCO Central Hispano
Banking 12,847 152,317
Centros Com Pryca
Retailing 6,522 201,920
Compania Telefonica
Nacional Espana
Telephone Utilities 5,929 263,242
Dragados y Construsion
Homebuilders 4,006 147,420
Endesa
Electric & Gas Utilities 9,328 246,786
Inmobilaria Ubris SA
Real Estate 10,003 155,197
Repsol SA
Energy Sources 2,346 124,959
Telefonica SA
Telecommunications 5,929 5,256
----------
1,757,292
----------
SWEDEN--1.8%
- --------------------------------------------------------------------------------
Ericsson LM - Class B
Electronics 9,620 228,518
Foreningssparbk
Banking 4,883 126,210
Skandia Forsikring AB
Insurance 11,242 171,574
Stora Kopparbergs Series A
Paper 5,819 50,134
Stora Kopparbergs Series R
Paper 10,797 94,352
----------
670,788
----------
SWITZERLAND--9.2%
- --------------------------------------------------------------------------------
Credit Suisse Group
Banking 796 124,583
Nestle SA
Food & Household Products 232 504,972
Novartis AG
Pharmaceuticals & Health 438 860,887
Roche Holdings AGM
Pharmaceuticals & Health 58 707,636
Schweiz Ruckverischerungs
Insurance 108 281,538
Swisscom AG*
Telecommunications 521 218,079
United Bank of Switzerland AG
Banking 1,359 417,484
Zurich Versicherungs
Insurance 416 307,980
----------
3,423,159
----------
THAILAND--0.4%
- --------------------------------------------------------------------------------
Bangkok Bank Public Co. Ltd.
Banking 116,600 166,801
----------
18
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS December 31, 1998
ISSUER/INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
UNITED KINGDOM--24.7%
- --------------------------------------------------------------------------------
Abbey National Plc.
Banking 6,966 $ 148,949
Allied Irish Banks
Banking 11,341 201,986
BAA
Business & Public Services 10,369 121,796
BG Plc.
Electrical & Gas Utilities 28,013 180,113
BOC Group
Chemicals 10,631 152,427
Barclays Bank Plc.
Banking 5,869 127,248
British American Tobacco
Beverage & Tobacco 14,598 128,542
British Aerospace Plc.
Aerospace &
Military Technology 18,471 157,429
British Petroleum Co.
Energy Sources 45,799 681,773
British Sky Broadcast
Broadcasting 16,326 123,686
British Telecommunications Plc.
Telephone Utilities 33,248 499,355
Cadbury Schweppes
Food & Household
Products 8,220 140,665
Diageo Plc.
Beverage & Tobacco 22,526 249,811
GKN
Machinery & Engineering 14,441 191,939
General Electric Co. Plc.
Electrical & Electronics 30,247 273,876
Glaxo Wellcome
Pharmaceuticals & Health 22,285 767,146
Granada Group Plc.
Business & Public Services 14,058 246,406
Great Universal Stores
Retailing 14,988 158,122
Halifax
Banking 10,787 153,230
Hanson
Construction Materials 17,323 137,859
Hong Kong & Shanghai
Bank Corp. Holdings
Banking 12,430 342,398
IMI Plc.
Multi-Industry 23,752 93,130
Imperial Chemical Industries
Chemicals 10,003 86,668
Kingfisher Plc.
Retailing 24,701 267,570
Lloyds TSB Group Plc.
Banking 29,148 415,016
National Grid Co.
Electrical & Gas Utilities 26,335 210,015
Pearson
Broadcasting 8,646 171,923
Prudential Corp. Plc.
Insurance 19,319 294,702
Railtrack Group
Railroads & Equipment 5,287 137,906
Rentokil Initial
Business & Public Services 20,493 154,915
Rio Tinto
Non-Ferrous Metals 10,313 119,939
Royal Bank of Scotland Group
Banking 13,363 218,461
Royal & Sun Alliance
Insurance 12,908 105,083
Scot & Newcastle
Leisure & Tourism 9,063 105,401
Scottish Power
Electrical & Gas Utilities 21,339 219,807
SmithKline Beecham Plc.
Pharmaceuticals & Health 25,470 357,570
Stagecoach Holdings
Railroads & Equipment 28,815 115,375
TI Group
Multi-Industry 21,940 118,011
Thames Water
Business & Public Services 9,215 177,594
Unilever Plc.
Food & Household Products 16,153 181,684
Vodafone
Telephone Utilities 20,446 332,217
Zeneca
Pharmaceuticals & Health 3,360 146,369
----------
9,214,112
----------
TOTAL INVESTMENTS
(Identified Cost
$32,408,202) 98.6% 36,707,161
OTHER ASSETS
LESS LIABILITIES 1.4 532,396
----- -----------
NET ASSETS 100.0% $37,239,557
===== ===========
* Non income producing securities.
Note: The Portfolio has the following industries over 10%: Banking 13%;
Pharmaceuticals &Health 11%.
See notes to financial statements.
19
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $32,408,202) $36,707,161
Foreign currency, at value (Cost, $110,788) 114,791
Cash 419,260
Receivable for investments sold 217,811
Dividends and interest receivable 38,152
- --------------------------------------------------------------------------------
Total assets 37,497,175
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 219,200
Payable to affiliates--Investment advisory fees (Note 2) 30,950
Other liabilities 7,468
- --------------------------------------------------------------------------------
Total liabilities 257,618
- --------------------------------------------------------------------------------
NET ASSETS $37,239,557
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $37,239,557
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax of $121,862) $503,439
Interest 606
- --------------------------------------------------------------------------------
Total investment income $ 504,045
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 353,752
Administrative fees (Note 3) 17,686
- --------------------------------------------------------------------------------
Total expenses 371,438
Less aggregate amount waived by the
Administrator (Note 3) (17,686)
- --------------------------------------------------------------------------------
Net expenses 353,752
- --------------------------------------------------------------------------------
Net investment income 150,293
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 1,527,985
Net realized loss on foreign currencies transactions (46,575)
- --------------------------------------------------------------------------------
Net realized gain 1,481,410
- --------------------------------------------------------------------------------
Unrealized appreciation of investments-- 3,853,138
Translation of other assets and liabilities
denominated in foreign currencies--net 2,603
- --------------------------------------------------------------------------------
Total unrealized appreciation of investments 3,855,741
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 5,337,151
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,487,444
- --------------------------------------------------------------------------------
See notes to financial statements
20
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 150,293 $ 257,502
Net realized gain on investments and foreign
exchange transactions 1,481,410 3,143,416
Unrealized appreciation (depreciation) of investments
and foreign currency exchange 3,855,741 (968,584)
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 5,487,444 2,432,334
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 9,800,225 7,972,770
Value of withdrawals (11,818,432) (25,691,025)
- --------------------------------------------------------------------------------
Net decrease in net assets from capital
transactions (2,018,207) (17,718,255)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: 3,469,237 (15,285,921)
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 33,770,320 49,056,241
- --------------------------------------------------------------------------------
End of period $37,239,557 $33,770,320
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
MAY 1, 1994
(COMMENCEMENT
YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
----------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $37,240 $33,770 $49,056 $40,114 $32,153
Ratio of expenses to
average net assets 1.00% 1.00% 1.11% 1.20% 1.22%*
Ratio of net investment
income to average net
assets 0.42% 0.58% 0.65% 0.59% 0.60%*
Portfolio turnover 118% 99% 109% 51% 25%
Note:If the Agents of the Portfolio had not voluntarily waived a portion of
their fees for the periods indicated, the ratios would have been as follows:
Expenses to average
net assets 1.05% 1.06% 1.13% N/A N/A
Net investment income to
average net assets 0.37% 0.52% 0.63% N/A N/A
- --------------------------------------------------------------------------------
*Annualized
See notes to financial statements
21
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES International Equity 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. Citigroup, Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc., which
was completed on October 8, 1998.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies consistently followed by the
Portfolio are as follows:
A. Investment Security Valuations Equity securities in the portfolio 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. 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 at the direction of 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 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 of fund
valuation, such securities will be valued at fair value in accordance with
procedures established by and under the general supervision of the Trustees.
B. 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, and income and
expenses are translated at the prevailing rate of exchange on the respective
dates of such transactions. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Translation of foreign currency
includes net exchange gains and losses, disposition of foreign currency and the
dif-
22
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
ference between the amount of investment income, expenses and foreign taxes
withheld recorded and the actual amount received or paid.
C. Forward Foreign Currency Exchange Contracts The Portfolio may enter into
forward foreign currency exchange contracts ("contracts") in connection with
planned purchases or sales of securities or 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. 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.
D. Accounting for Investments Securities transactions are accounted for on
the trade date. Realized gains and losses on security transactions are
determined on the identified cost method. Dividend income and other
distributions from portfolio securities are recorded on the ex-dividend date.
Dividend income is recorded net of foreign taxes withheld where recovery of such
taxes is not assured. Interest income is accrued daily.
E. U.S. Federal Income and Other Taxes The Portfolio is considered a
partnership under the U.S. Internal Revenue Code. Accordingly, no provision for
federal income taxes is necessary. The Portfolio may be subject to taxes imposed
by countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated.Taxes are accrued and applied to net
investment income and net realized gains as such income and/or gains are earned.
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. 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.
2. INVESTMENT ADVISORY FEES
The investment advisory fees paid to Citibank, as compensation for overall
investment management services, amounted to $353,752 for the year ended December
31, 1998. The investment advisory fees are computed at the annual rate of 1.00%
of the Portfolio's average daily net assets.
23
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
3. ADMINISTRATIVE FEES
Under the terms of an Administrative Services Agreement, the administrative
services fees paid to the Administrator, as compensation for overall
administrative services including 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 $17,686, all of which was voluntarily waived for
the year ended December 31, 1998. The Portfolio pays no compensation directly to
any Trustee or 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 officers and a Trustee of the Portfolio are officers
and directors of the Administrator or its affiliates.
4. PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1998, purchases and sales of investment
securities, other than short-term investments, aggregated $40,250,624 and
$40,936,714, 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 $32,518,022
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 5,638,808
Gross unrealized depreciation (1,449,669)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 4,189,139
- --------------------------------------------------------------------------------
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
expenses of the Portfolio less expenses waived by the Administrator would on an
annual basis exceed an agreed upon rate, which as of July 1, 1996 is 1.00% of
average daily net assets.
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INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL INSTRUMENTS
The Portfolio may trade financial instruments with off-balance sheet risk in the
normal course of its investing activities and to assist in managing exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when related and offsetting transactions are considered. No such instruments
were held at December 31, 1998.
8. LINE OF CREDIT
The Portfolio, along with the other Portfolios in the CitiFunds Family, 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 $116. Since the line of credit was established, there have been no
borrowings.
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INTERNATIONAL EQUITY PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE TRUST), WITH
RESPECT TO ITS SERIES, INTERNATIONAL EQUITY PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of International Equity 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 (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 U.S. generally accepted auditing
standards. 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 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 its financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accounts
Toronto, Ontario
February 12, 1999
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