SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.4%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 9.1%
- --------------------------------------------------------------------------------
Applied Power, Inc. 19,000 $ 552,187
Catalina Marketing Corp.* 21,590 2,021,364
Cleco Corp. 21,000 695,625
Covad Communications Group, Inc.* 12,812 614,976
Lamar Advertising Co.* 29,235 1,578,690
Powertel, Inc.* 8,900 523,988
Profit Recovery Group International, Inc.* 32,576 1,341,724
Research in Motion Ltd.* 24,200 744,150
Source Information Management Co. *65,400 784,800
------------
8,857,504
------------
CONSUMER DURABLES -- 0.6%
- --------------------------------------------------------------------------------
Ethan Allen Interiors, Inc. 17,250 613,453
------------
CONSUMER NON-DURABLES -- 1.5%
- --------------------------------------------------------------------------------
Beringer Wine Estate ~Holdings* 13,170 523,507
Papa John's International, Inc.* 23,900 893,263
------------
1,416,770
------------
CONSUMER SERVICES -- 10.3%
- --------------------------------------------------------------------------------
Emmis Communications ~Corp.* 7,300 526,512
Hispanic Broadcasting ~Corp.* 17,735 1,436,535
Houghton Mifflin Co. 13,100 555,112
Mail.Com, Inc.* 15,600 233,025
Premier Parks, Inc.* 44,556 1,289,339
SFX Entertainment, Inc.* 48,522 1,695,237
Saucony, Inc.* 32,447 555,655
Spanish Broadcasting Systems, Inc.* 18,115 482,312
Ticketmaster Online Citysearch* 8,400 189,000
Westwood One, Inc.* 45,628 2,104,592
Wiley John & Son 14,190 239,456
Young Broadcasting, Inc.* 14,500 672,438
------------
9,979,213
------------
ELECTRONICS/TECHNICAL SERVICES -- 24.2%
- --------------------------------------------------------------------------------
Activision, Inc.* 46,700 659,637
Amkor Technology, Inc.* 15,500 312,906
Ancor Communications, Inc.* 20,700 655,931
C Cube Microsystems, Inc.* 23,995 1,067,777
Crossroads Systems, Inc.* 364 25,889
DII Group, Inc.* 9,800 352,800
Hanover Compressor Co.* 20,700 765,900
Imclone System, Inc.* 11,000 306,625
Inprise Corp.* 111,200 413,525
Macromedia, Inc.* 38,685 2,492,765
Macrovision Corp.* 23,200 1,313,700
Microchip Technology, Inc.* 20,485 1,364,813
National Information Consortium, Inc.* 7,188 235,407
Network Appliance, Inc.* 25,050 1,853,700
Novellus Systems, Inc.* 22,695 1,758,863
PMC Sierra, Inc.* 10,800 1,017,900
Pinnacle Holdings, Inc.* 99,410 2,385,840
Powerwave Technologies, Inc.* 11,500 748,219
Varian, Inc.* 45,700 862,588
Voicestream Wireless Corp.* 21,250 2,098,438
Western Wireless Corp.* 27,850 1,472,569
Whittman Hart, Inc.* 34,150 1,312,641
------------
23,478,433
------------
ENERGY MINERALS -- 4.4%
- --------------------------------------------------------------------------------
Cal Dive International, Inc.* 22,200 746,475
Coflexip 21,500 851,937
Petroleum Geological Services* 44,135 645,474
R & B Falcon Corp.* 166,200 2,067,113
------------
4,310,999
------------
FINANCE -- 8.4%
- --------------------------------------------------------------------------------
Blanch Holdings, Inc. 6,900 446,775
Checkfree Holdings ~Corp.* 26,200 979,225
Chittenden Corp. 36,700 1,133,112
Cost Plus, Inc.* 24,250 885,125
Cullen Frost Bankers, Inc. 45,960 1,318,432
Peoples Heritage Financial Group 62,895 1,195,005
SEI Investments Co. 5,300 516,584
Telebanc Financial Corp.* 16,748 401,952
U.S. Trust Corp. 15,210 1,233,911
------------
8,110,121
------------
HEALTH SERVICES/TECHNOLOGY -- 12.5%
- --------------------------------------------------------------------------------
Alpharma, Inc. 16,700 587,631
Andrx Corp.* 18,200 869,050
Apria Healthcare Group, Inc.* 44,200 698,913
Barr Laboratories, Inc.* 33,460 1,014,256
16
<PAGE>
SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH SERVICES/TECHNOLOGY (cont'd)
- --------------------------------------------------------------------------------
Gilead Sciences, Inc.* 5,800 $ 366,487
Idec Pharmaceuticals Corp.* 3,100 360,181
Idex Corp. 22,100 544,213
Leukosite, Inc.* 25,800 717,563
Medimmune, Inc.* 10,410 1,165,920
Medquist, Inc.* 22,620 723,840
Resmed, Inc.* 24,600 851,775
Roberts Pharmaceutical Corp.* 74,900 2,415,525
Ventana Medical Systems, Inc.* 23,377 469,001
Xomed Surgical Products, Inc.* 22,700 1,380,444
------------
12,164,799
------------
INDUSTRIAL SERVICES -- 1.2%
- --------------------------------------------------------------------------------
Gentex Corp.* 18,200 312,812
Harmonic, Inc.* 5,000 296,875
Waste Connections, Inc.* 34,455 531,899
------------
1,141,586
------------
PROCESS INDUSTRIES -- 5.1%
- --------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 7,600 467,400
Aptargroup, Inc. 40,595 1,090,991
Mettler Toledo International, Inc.* 31,500 939,094
Micrel, Inc.* 29,600 1,609,500
Precision Drilling Corp.* 35,100 813,881
------------
4,920,866
------------
RETAIL -- 5.0%
- --------------------------------------------------------------------------------
Linens `n Things, Inc.* 28,410 1,129,298
O'Reilly Automotive, Inc.* 17,200 750,350
Sportsline USA, Inc.* 11,400 409,688
Tiffany & Co. 4,930 293,335
Zale Corp.* 23,400 979,875
Zany Brainy, Inc.* 100,500 1,243,688
------------
4,806,234
------------
TECHNOLOGY SERVICES -- 11.8%
- --------------------------------------------------------------------------------
Bisys Group, Inc.* 18,520 944,520
Dallas Semiconducter Corp. 14,000 824,250
Electronics For Imaging, Inc.* 24,580 990,881
Exodus Communications, Inc.* 14,400 1,238,400
High Speed Access Corp.* 12,206 321,170
Legato Systems, Inc.* 38,690 2,079,588
Mercury Interactive Corp.* 39,660 3,217,418
Microstrategy, Inc.* 5,200 502,450
National Instruments Corp.* 43,900 1,319,744
------------
11,438,421
------------
TRANSPORTATION -- 3.3%
- --------------------------------------------------------------------------------
CH Robinson Worldwide 28,700 970,419
CNF Transportation, Inc. 26,600 879,462
Eagle U.S.A. Airfreight, Inc.* 46,362 1,367,679
------------
3,217,560
------------
Total Investments
(Identified Cost
$70,098,484) 97.4% 94,455,959
OTHER ASSETS,
LESS LIABILITIES 2.6 2,495,359
----- ------------
NET ASSETS 100.0% $ 96,951,318
===== ============
* Non income producing securities
See notes to financial statements
17
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $70,098,484) $94,455,959
Dividends receivable 5,152
Receivable for investments sold 4,223,804
- --------------------------------------------------------------------------------
Total assets 98,684,915
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,017,220
Payable to custodian 548,533
Payable to affiliates-- Management fees (Note 2) 61,359
Accrued expenses and other liabilities 106,485
- --------------------------------------------------------------------------------
Total liabilities 1,733,597
- --------------------------------------------------------------------------------
NET ASSETS $96,951,318
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $96,951,318
================================================================================
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME:
Dividend income
(net of foreign withholding tax of $2,492) $ 311,420
Interest income 161,772
- --------------------------------------------------------------------------------
$ 473,192
EXPENSES:
Management fees (Note 2) 1,112,230
Custody and fund accounting fees 88,181
Legal fees 30,474
Audit fees 28,293
Trustees fees 6,034
Other 7,848
- --------------------------------------------------------------------------------
Total expenses 1,273,060
- --------------------------------------------------------------------------------
Net investment loss (799,868)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 16,500,537
Unrealized appreciation of investments 18,520,946
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 35,021,483
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $34,221,615
================================================================================
See notes to financial statements
18
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
-----------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (799,868) $ (1,122,896)
Net realized gain (loss) on investment
transactions 16,500,537 (9,691,394)
Unrealized appreciation (depreciation)
of investments 18,520,946 (27,795,086)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 34,221,615 (38,609,376)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 22,851,267 260,666,527
Value of withdrawals (154,792,807) (76,983,925)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (131,941,540) 183,682,602
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (97,719,925) 145,073,226
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 194,671,243 49,598,017
- --------------------------------------------------------------------------------
End of period $ 96,951,318 $194,671,243
================================================================================
SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEN MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
YEAR ENDED OCTOBER 31, YEAR ENDED OF OPERATIONS)
OCTOBER 31, 1997 DECEMBER 31, TO DECEMBER 31,
1999 1998 (Note 1F) 1996 1995
============================================================================================================
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $96,951 $194,671 $49,598 $47,142 $ 4,989
Ratio of expenses to average
net assets 0.86% 0.88% 0.85%* 0.61% 0.00%*
Ratio of net investment income
(loss) to average net assets (0.54)% (0.50)% (0.37)% *0.15% 1.22%*
Portfolio turnover 104% 51% 108% 89% 41%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed Portfolio
expenses for the periods indicated and had expenses been limited to that required by certain state
securities laws for the period ended December 31, 1995, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 0.86% 0.88% 1.04%* 1.17% 2.50%*
Net investment loss to average
net assets (0.54)% (0.50)% (0.56)%* (0.41)% (1.28)%*
============================================================================================================
</TABLE>
* Annualized
See notes to financial statements
19
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Growth Portfolio (the "Portfolio"),
a separate series of The Premium Portfolios (the "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 CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $15,439,632, $38,272,468, $75,166,816 and
$37,432,299 including $2,166,532, $5,841,516, $11,815,501 and $5,364,662,
respectively of unrealized appreciation to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets, are included in the year
ended October 31, 1998 "Proceeds from contributions" in the Statement of Changes
in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
20
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. CHANGE IN FISCAL YEAR END During fiscal year 1997, the Portfolio changed
its fiscal year end from December 31 to October 31.
G. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolios' business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub- Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn, 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, amounted to $1,112,230 for the year
ended October 31, 1999. The management fees are computed at the annual rate of
0.75% of the Portfolio's average daily net assets.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $148,954,353 and $277,231,568,
respectively, for the year ended October 31, 1999.
21
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $70,383,477
================================================================================
Gross unrealized appreciation $26,549,552
Gross unrealized depreciation (2,477,070)
- --------------------------------------------------------------------------------
Net unrealized appreciation $24,072,482
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $365. Since the line of credit
was established, there have been no borrowings.
22
<PAGE>
SMALL CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"), WITH
RESPECT TO ITS SERIES, SMALL CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Growth Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, 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 October 31, 1999 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 October 31, 1999, 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
December 14, 1999
23
<PAGE>
LARGE CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.5%
- --------------------------------------------------------------------------------
CAPITAL GOODS/PRODUCER
MANUFACTURER -- 2.6%
- --------------------------------------------------------------------------------
Danaher Corp. 88,500 $ 4,275,656
Tyco International Ltd. 348,000 13,898,250
------------
18,173,906
------------
COMPUTER SOFTWARE -- 8.0%
- --------------------------------------------------------------------------------
Microsoft Corp.* 503,600 46,614,475
Oracle Corp.* 210,000 9,988,125
------------
56,602,600
------------
COMPUTER & TELECOMMUNICATIONS
EQUIPMENT -- 19.8%
- --------------------------------------------------------------------------------
Cisco Systems Inc.* 466,800 34,543,200
Dell Computer Corp.* 310,000 12,438,750
EMC Corp.* 89,600 6,540,800
International Business
Machines Corp. 305,600 30,063,400
Lexmark International
Group Inc.* 159,000 12,411,938
Lucent Technologies Inc. 494,600 31,778,050
Sun Microsystems Inc.* 75,000 7,935,937
Tellabs Inc.* 61,000 3,858,250
------------
139,570,325
------------
COMMERCIAL SERVICES -- 1.0%
- --------------------------------------------------------------------------------
Interpublic Group of
Companies Inc. 177,600 7,215,000
------------
COMMUNICATION SERVICES -- 10.0%
- --------------------------------------------------------------------------------
AT&T Corp. 300,000 14,025,000
Bell Atlantic Corp. 240,000 15,585,000
BellSouth Corp. 278,000 12,510,000
GTE Corp. 152,000 11,400,000
SBC Communications 327,000 16,656,562
------------
70,176,562
------------
CONGLOMERATES -- 9.1%
- --------------------------------------------------------------------------------
General Electric Co. 470,900 63,836,381
------------
CONSUMER NON-DURABLES -- 3.3%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 221,180 23,196,252
------------
CONSUMER SERVICES -- 1.0%
- --------------------------------------------------------------------------------
Carnival Corp. 153,000 6,808,500
------------
FINANCE -- 6.8%
- --------------------------------------------------------------------------------
American Express Co. 78,000 12,012,000
Bank of New York 232,100 9,719,187
Federal Home Loan
Mortgage Corp. 101,000 5,460,313
Federal National
Mortgage Association 148,000 10,471,000
MBNA Corp. 360,000 9,945,000
------------
47,607,500
------------
HEALTHCARE -- 19.4%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 303,000 23,274,188
Eli Lilly & Co. 80,600 5,551,325
Johnson & Johnson 240,700 25,213,325
Merck & Co. 355,800 28,308,338
Pfizer Inc. 528,000 20,856,000
Schering-Plough Corp. 394,200 19,512,900
Warner Lambert Co. 173,000 13,807,563
------------
136,523,639
------------
RETAIL -- 10.4%
- --------------------------------------------------------------------------------
Bed Bath & Beyond Inc.* 232,100 7,731,831
Family Dollar Stores Inc. 151,000 3,114,375
Home Depot 198,000 14,949,000
Kohl's Corp.* 101,000 7,556,062
Ross Stores Inc. 432,000 8,910,000
Wal-Mart Stores Inc. 550,200 31,189,463
------------
73,450,731
------------
SEMI-CONDUCTORS -- 6.1%
- --------------------------------------------------------------------------------
Altera Corp.* 115,000 5,591,875
Intel Corp. 388,600 30,092,212
Linear Technologies Corp. 53,000 3,706,688
Maxim Integrated
Products Inc.* 45,000 3,552,188
------------
42,942,963
------------
TOTAL COMMON STOCKS
(Identified Cost
$552,122,440) 686,104,359
------------
16
<PAGE>
LARGE CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER VALUE
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS
AT AMORTIZED COST--0.7%
- --------------------------------------------------------------------------------
First Union National Bank
5.30% due 11/1/99 proceeds
at maturity $4,639,048
(collateralized by $4,670,000
Federal Home Loan Mortgage
6.44% due 8/11/01, valued at
$4,692,355) $ 4,637,000
------------
TOTAL INVESTMENTS
(Identified Cost
$556,759,440) 98.2% 690,741,359
OTHER ASSETS,
LESS LIABILITIES 1.8 12,558,852
----- ------------
NET ASSETS 100.0% $703,300,211
===== ============
* Non income producing securities
See notes to financial statements
17
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $556,759,440) $690,741,359
Cash 260
Receivable for investments sold 33,234,834
Dividends and interest receivable 504,659
- --------------------------------------------------------------------------------
Total assets 724,481,112
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 20,347,609
Payable to affiliates-Management fees (Note 2) 355,599
Accrued expenses and other liabilities 477,693
- --------------------------------------------------------------------------------
Total liabilities 21,180,901
- --------------------------------------------------------------------------------
NET ASSETS $703,300,211
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $703,300,211
================================================================================
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 4,240,877
Interest income 884,047
- --------------------------------------------------------------------------------
Total investment income $ 5,124,924
EXPENSES:
Management fees (Note 2) 4,351,046
Custody and fund accounting fees 391,912
Legal fees 43,653
Audit fees 28,303
Trustees fees 13,557
Other 10,055
- --------------------------------------------------------------------------------
Total expenses 4,838,526
- --------------------------------------------------------------------------------
Net investment income 286,398
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 130,508,299
Unrealized appreciation of investments 16,171,002
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 146,679,301
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $146,965,699
================================================================================
See notes to financial statements
18
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
---------------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 286,398 $ 1,225,038
Net realized gain on investment transactions 130,508,299 61,181,518
Unrealized appreciation of investments 16,171,002 55,065,852
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 146,965,699 117,472,408
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 301,816,661 369,790,712
Value of withdrawals (356,386,616) (201,271,389)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (54,569,955) 168,519,323
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 92,395,744 285,991,731
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 610,904,467 324,912,736
- --------------------------------------------------------------------------------
End of period $703,300,211 $610,904,467
================================================================================
LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEN MONTHS MAY 1, 1994
YEAR ENDED ENDED YEAR ENDED (COMMENCEMENT
OCTOBER 31, OCTOBER 31, DECEMBER 31, OF OPERATIONS)
------------------ 1997 -------------- TO DECEMBER 31,
1999 1998 (NOTE 1F) 1996 1995 1994
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
<S> <C> <C> <C> <C> <C> <C>
(000's omitted) $703,300 $610,904 $324,913 $288,562 $246,158 $186,685
Ratio of expenses to
average net assets 0.67% 0.71% 0.60%* 0.60% 0.60% 0.60%*
Ratio of net investment income
to average net assets 0.04% 0.23% 0.62%* 1.10% 1.73% 1.81%*
Portfolio turnover 108% 53% 103% 90% 67% 35%
==========================================================================================================
* Annualized
See notes to financial statements
</TABLE>
19
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Large Cap Growth Portfolio (the "Portfolio"),
a separate series of The Premium Portfolios (the "Trust"), is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Manager of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $12,183,616, $34,554,616, $38,508,816 and
$16,346,503 including $1,107,028, $3,598,984, $4,092,260 and $1,450,560,
respectively, of unrealized appreciation, to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets are included in the year
ended October 31, 1998 "Proceeds from contributions" in the Statement of Changes
in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
20
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
F. CHANGE IN FISCAL YEAR END During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn 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 amounted to $4,351,046 for the year
ended October 31, 1999. Management fees are computed at the annual rate of 0.60%
of the Portfolio's average daily net assets.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $827,781,024 and $883,658,791,
respectively, for the year ended October 31, 1999.
21
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $556,927,539
================================================================================
Gross unrealized appreciation $142,805,313
Gross unrealized depreciation (8,991,493)
- --------------------------------------------------------------------------------
Net unrealized appreciation $133,813,820
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $2,010. Since the line of
credit was established, there have been no borrowings.
22
<PAGE>
LARGE CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"): WITH
RESPECT TO ITS SERIES, LARGE CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Large Cap Growth Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, 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 October 31, 1999 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, 1999, 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
December 14, 1999
23
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ---------------------------------------------------------------------
FIXED INCOME -- 113.3%
- ---------------------------------------------------------------------
ASSET BACKED SECURITIES -- 27.6%
- ---------------------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $3,389 $ 3,376,054
Aircraft Financial Trust
8.00% due 5/15/24 5,000 4,653,350
Amresco Residential
Securities
6.245% due 4/25/22 3,000 2,978,430
Asset Securitization Corp.,
Series 95
7.10% due 8/13/29 1,879 1,871,715
7.384% due 8/13/29 3,500 3,491,495
Asset Securitization Corp.,
Series 97
6.50% due 2/14/41 2,530 2,510,910
6.85% due 2/14/41 2,425 2,334,184
Commercial Mortgage Corp.
5.80% due 3/15/06 2,076 1,990,617
Contimortgage Home
Equity Loan
6.13% due 3/15/13 4,000 3,968,720
CRIMI Mae Commercial
MortgageTrust
7.00% due 11/02/11 2,000 1,442,188
First Union, Lehman
Brothers
6.479% due 3/18/04 1,390 1,379,226
GE Capital Mortgage
Services, Inc.
5.905% due 10/25/13 2,000 1,972,900
GMAC Commercial
Mortgage Inc.
6.42% due 8/15/08 4,110 3,909,884
6.83% due 12/15/03 3,747 3,757,931
Green Tree Financial Corp.
6.71% due 8/15/29 3,850 3,645,180
8.05% due 10/15/27 5,000 5,101,550
8.41% due 12/01/30 3,000 2,789,610
IMC Home Equity
Loan Trust
6.16% due 5/20/14 2,894 2,881,362
6.34% due 8/20/29 3,600 3,458,628
JP Morgan Commercial
Mortgage Financial Corp.
6.373% due 1/15/30 2,074 2,032,250
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 1,725 1,729,169
Morgan Stanley
Capital Investment Inc.
6.44% due 11/15/02 3,630 3,613,411
6.55% due 12/15/07 1,500 1,444,440
Nissan Auto
Receivables Grantor
6.15% due 2/15/03 1,249 1,243,418
Nomura Asset
Securitization Corp.
8.15% due 3/04/20 $3,000 3,106,950
Norwest Asset
Securitization Corp.
6.75% due 11/25/27 2,000 1,964,560
Norwest Asset
Securitization Corp.
6.75% due 2/25/13 2,008 1,995,782
PNC Mortgage
Securities Corp.
6.392% due 9/25/13 1 1,091
Structured Asset
Securities Corp.
6.79% due 6/12/04 5,921 5,891,973
-----------
80,536,978
-----------
FOREIGN CORPORATIONS -- 1.8%
- ---------------------------------------------------------------------
Quebec Providence CDA
7.50% due 9/15/29 1,935 1,944,288
YPF Sociedad Anonima
7.25% due 3/15/03 3,455 3,346,886
-----------
5,291,174
-----------
DOMESTIC CORPORATIONS -- 26.7%
- ---------------------------------------------------------------------
Ahold Financial U.S.A., Inc.
6.875% due 5/01/29 3,335 2,924,295
American Financial Group Inc.
7.125% due 4/15/09 3,115 2,837,017
Associates Corporation of
North America
6.95% due 11/01/18 3,215 3,052,932
BB&T Corp.
6.375% due 6/30/05 3,270 3,097,246
Bank One Corp.
5.625% due 2/17/04 3,770 3,588,776
Century Telephone
Enterprises Inc.
6.30% due 1/15/08 3,515 3,268,106
Conseco Inc.
6.40% due 6/15/01 2,910 2,850,258
Dayton Hudson Corp.
6.65% due 8/01/28 3,360 2,983,478
Dynegy Inc.
7.45% due 7/15/06 2,895 2,875,259
Equitable Life Assurance
6.95% due 12/01/05 3,275 3,235,700
Ford Motor Co.
6.625% due 10/01/28 2,190 1,948,158
Ford Motor Co.
7.375% due 10/28/09 3,190 3,215,711
Great Lakes Chemical Corp.
7.00% due 7/15/09 3,175 3,081,274
Household Financial Corp.
6.50% due 11/15/08 3,020 2,848,796
16
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
DOMESTIC CORPORATIONS (CONT'D)
- ----------------------------------------------------------------------
Knight Ridder Inc.
6.875% due 3/15/29 $3,285 $ 2,975,395
Lehman Brothers
Holdings, Inc.
7.00% due 5/15/03 3,200 3,184,419
Lehman Brothers
Holdings, Inc.
7.875% due 11/01/09 3,230 3,253,934
MCI Communications Corp.
6.50% due 4/15/10 3,300 3,128,103
Mattel Inc.
6.00% due 7/15/03 3,010 2,873,987
Merita Bank plc
6.50% due 4/01/09 3,615 3,335,307
Morgan Stanley
Dean Witter & Co.
5.625% due 1/20/04 2,900 2,757,900
National Rural Utilities
6.20% due 2/01/08 3,125 2,949,969
Osprey Trust Inc.
8.31% due 1/15/03 2,915 2,923,308
Petroleum Geological
Services
6.625% due 3/30/08 2,760 2,590,950
Popular North America, Inc.
6.875% due 6/15/01 2,415 2,410,619
TPSA Financial
7.75% due 12/10/08 2,050 1,889,227
Wal-Mart Stores Inc.
6.875% due 8/10/09 1,700 1,702,941
-----------
77,783,065
-----------
MORTGAGE OBLIGATIONS -- 31.5%
- ----------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.0%
- ----------------------------------------------------------------------
CMC Securitization Corp.,
Series 97
7.00% DUE 10/25/27 731 730,861
CWMBS Inc., Series 98
6.50% due 7/25/13 2,173 2,066,080
CWMBS Inc., Series 97
6.75% due 10/25/27 164 163,788
Chase Mortgage
Financial Trust
6.50% due 9/25/13 2,008 1,906,781
Federal Home Loan
Mortgage Corp.
6.25% due 6/15/24 3,440 3,313,690
6.75% due 8/15/04 1,500 1,485,000
Federal National Mortgage
Association
7.412% due 8/17/21 2,941 2,957,834
Government National
Mortgage Association
7.25% due 10/16/22 $1,446 1,451,526
Residential Asset
Securitization Trust
7.00% due 2/25/08 452 451,603
-----------
14,527,163
-----------
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 17.1%
- ----------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.00% TBA 1,000 932,500
6.00% due 8/01/00 2,037 2,030,208
6.50% due 2/01/11 68 66,950
6.50% due 4/01/11 235 231,858
6.50% due 7/01/11 288 282,430
6.50% due 8/01/11 63 61,814
6.50% due 9/15/22 761 742,150
8.50% due 4/01/01 6 6,087
-----------
4,353,997
-----------
Federal National
Mortgage Association
5.50% TBA 10,000 9,009,375
6.50% TBA 9,130 8,747,636
6.50% TBA 4,500 4,412,790
6.50% due 5/01/11 323 317,863
6.50% due 7/01/11 316 310,275
6.50% due 8/25/22 1,500 1,446,824
6.50% due 4/01/29 3,926 3,761,878
6.50% due 5/01/29 4,420 4,234,949
7.00% due 6/01/03 170 170,050
7.00% due 7/01/03 275 276,375
7.50% due 10/01/25 795 798,210
7.50% due 11/01/25 1,544 1,550,095
7.50% due 5/01/26 166 166,412
7.50% due 6/01/26 27 27,083
7.50% TBA 9,700 9,718,188
8.00% due 6/01/02 6 5,552
8.00% due 5/01/26 336 342,696
8.00% due 6/01/26 166 169,560
8.00% due 7/01/26 87 88,839
-----------
45,554,650
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 9.4%
- ----------------------------------------------------------------------
6.50% TBA 2,925 2,793,375
6.50% TBA 4,000 3,803,750
7.00% TBA 17,350 17,008,422
7.00% due 2/15/24 3,688 3,638,081
8.00% due 12/15/07 39 38,988
-----------
27,282,616
-----------
TOTAL MORTGAGE OBLIGATIONS 91,718,426
-----------
17
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
YANKEE BONDS -- 4.4%
- ----------------------------------------------------------------------
Corporacion Andina
De Fomento
7.75% due 3/01/04 $3,180 $ 3,134,175
DaimlerChrysler of
North America
7.20% due 9/01/09 3,025 3,024,032
Imperial Tob Overseas
7.125% due 4/01/09 3,275 2,992,859
Korea Development Bank
7.125% due 4/22/04 2,930 2,838,300
TPSA Financial
7.75% due 12/10/08 900 846,426
-----------
12,835,792
-----------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 21.3%
- ----------------------------------------------------------------------
UNITED STATES TREASURY BONDS -- 7.0%
- ----------------------------------------------------------------------
8.125% due 8/15/19 4,500 5,300,145
3.625% due 4/15/28 4,029 3,692,760
3.875% DUE 4/15/29 5,082 4,865,967
6.125% due 8/15/29 6,600 6,571,092
-----------
20,429,964
-----------
UNITED STATES TREASURY NOTES -- 12.6%
- ----------------------------------------------------------------------
5.625% due 4/30/00 215 215,234
5.50% due 12/31/00 110 109,777
6.50% due 5/31/01 1,150 1,162,213
6.00% due 8/15/04 10,935 10,960,588
6.00% due 8/15/09 3,760 3,754,698
6.875% due 5/15/06 8,000 8,302,480
6.625% due 5/15/07 6,720 6,895,325
3.875% due 1/15/09 5,550 5,445,938
-----------
36,846,253
-----------
UNITED STATES AGENCY
OBLIGATIONS -- 1.7%
- ----------------------------------------------------------------------
Federal National Mortgage
Association
5.49% due 8/18/00 $5,000 $ 4,979,700
-----------
TOTAL UNITED STATES
GOVERNMENT AND OTHER
GOVERNMENT OBLIGATIONS 62,255,917
-----------
TOTAL FIXED INCOME
(Identified Cost
$341,086,190) 330,421,352
-----------
PREFERRED STOCK -- 1.1%
- ----------------------------------------------------------------------
Comed Financing I
(Identified Cost
$3,531,870) 138 3,345,967
-----------
SHORT-TERM OBLIGATIONS -- 2.1%
- ----------------------------------------------------------------------
First Union National Bank
5.30% Due 11/01/99
proceeds at maturity $5,380,375
(collateralized by $5,470,000
Federal Home Loan Mortgage
6.16% due 3/29/01,
valued at $5,470,864) 5,378 5,378,000
-----------
United States Treasury Bills
4.50% due 12/23/99 115 114,253
4.57% due 12/23/99 85 84,439
4.66% due 12/23/99 432 429,092
-----------
627,784
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost
$6,005,784) 6,005,784
-----------
TOTAL INVESTMENTS
(Identified Cost
$350,623,844) 116.5% 339,773,103
OTHER ASSETS,
LESS LIABILITIES (16.5) (48,237,505)
-----------
NET ASSETS 100.0% $291,535,598
===== ============
FUTURES CONTRACTS
- ----------------------------------------------------------------------
Futures contracts which were open at October 31, 1999 are as follows :
<TABLE>
<CAPTION>
AGGREGATE
DESCRIPTION/ NUMBER OF FACE VALUE OF EXPIRATION UNREALIZED
POSITION CONTRACTS CONTRACTS DATE GAIN/(LOSS)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Long Bond (Sell) (50) $ (5,000,000) December 20, 1999 $(10,922)
U.S. Two Year Note (Buy) 140 14,000,000 December 29, 1999 (9,275)
U.S. Five Year Note (Buy) 120 12,000,000 December 31, 1999 98,475
U.S. Ten Year Note (Sell) (275) (27,500,000) December 20, 1999 36,023
--------
$114,301
--------
</TABLE>
See notes to financial statements
18
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $350,623,844) $339,773,103
Cash 1,941
Interest receivable 3,271,699
Receivable for investments sold 25,952,320
Receivable for daily variation on futures contracts 85,156
- --------------------------------------------------------------------------------
Total assets 369,084,219
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 77,034,746
Payable for daily variations on futures contracts 280,469
Payable to affiliates--Management Fee (Note 2) 108,565
Accrued expenses and other liabilities 124,841
- --------------------------------------------------------------------------------
Total liabilities 77,548,621
- --------------------------------------------------------------------------------
Net Assets $291,535,598
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $291,535,598
================================================================================
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Interest Income $12,059,138
Dividend Income 170,690
- --------------------------------------------------------------------------------
$12,229,828
EXPENSES:
Management fees (Note 2) 664,250
Custody and fund accounting fees 15,640
Audit fees 38,473
Legal fees 35,303
Trustees fees 5,320
Other 3,979
- --------------------------------------------------------------------------------
Total expenses 762,965
- --------------------------------------------------------------------------------
Net investment income 11,466,863
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized depreciation of investments and
futures contracts (10,736,440)
Less unrealized depreciation from contributed
assets (Note 1) (3,295,843)
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (7,440,597)
- --------------------------------------------------------------------------------
Net realized gain from futures transactions 389,144
Net realized loss from investment transactions (6,199,658)
- --------------------------------------------------------------------------------
Net realized loss from investment and
futures transactions 5,810,514)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (13,251,111)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,784,248)
- --------------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $11,466,863
Net realized loss from investment and futures transactions (5,810,514)
Unrealized depreciation of investments (7,440,597)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (1,784,248)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 452,433,828
Value of withdrawals (159,113,982)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 293,319,846
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 291,535,598
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $291,535,598
================================================================================
See notes to financial statements
U.S. FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1998
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $291,536
Ratio of expenses to average net assets 0.40%
Ratio of net investment income to average net assets 6.04%
Portfolio turnover 253%
================================================================================
See notes to financial statements
20
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES U.S. Fixed Income Portfolio (the
"Portfolio"), a separate series of The Premium Portfolios (the "Portfolio
Trust"), is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Portfolio commenced
operations on November 1, 1998. The Declaration of Trust permits the Trustees to
issue beneficial interests in the Portfolio. The Investment Manager of the
Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand
Cayman), Ltd. ("SFG") acts as the Administrator.
On November 1, 1998, CitiFunds Intermediate Income Portfolio transferred all
of its investable assets in the amount of $76,788,364 including $1,683,386 of
unrealized appreciation to the Portfolio in exchange for an interest in the
Portfolio. Also, on May 3, 1999, the Intermediate Income Portfolio transferred
all of its investable assets in the amount of $153,278,329 including $1,000,795
of unrealized depreciation to the Portfolio in exchange for an interest in the
Portfolio. Additionally, on August 1, 1999, the Balanced Portfolio transferred a
portion of its investable assets in the amount of $113,810,272 including
$3,978,434 of unrealized depreciation to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets along with current period
contributions are included in the "Proceeds from contributions" on the Statement
of Changes in Net Assets.
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 Debt securities (other than short-term
obligations maturing in sixty days or less) are valued on the basis of
valuations furnished by pricing services, 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 upon quoted prices or exchange or over-the-counter
prices since such valuations are believed to reflect more accurately the fair
value of the securities. Short-term obligations (maturity 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 U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as ordinary income.
21
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. 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 TBApurchase 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 TBApurchase 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
fluctuations 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's portfolio in an effort to reduce potential losses
or enhance potential gains. 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 fund investments.
22
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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 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 Fund 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. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a 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. CFBDS acts as
Sub-Administrator and performs such duties and receives such compensation from
Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn, 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 amounted to $664,250 for the period
November 1, 1998 (commencement of operations) to October 31, 1999. The
management fees are computed at the annual rate of 0.35% of the Portfolio's
average daily net assets. The Trust pays no compensation directly to any Trustee
or any other officer who is affiliated with the Sub-Administrator, all of whom
receive remuneration for their services to the Trust from the Sub-Administrator
or its affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $514,561,468 and $514,252,682,
respectively, for the period November 1, 1998 (Commencement of Operations) to
October 31, 1999.
23
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized
appreciation (depreciation) in value of the investment securities owned at
October 31, 1999, as computed on a federal income tax basis, are as follows:
Aggregate cost $350,829,042
================================================================================
Gross unrealized appreciation $ 299,826
Gross unrealized depreciation (11,355,765)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(11,055,939)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Funds collectively to borrow up to $75 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, 1998
(Commencement of Operations) to October 31, 1999, the commitment fee allocated
to the Portfolio was $599. Since the line of credit was established, there have
been no borrowings.
24
<PAGE>
U.S. FIXED INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"),
WITH RESPECT TO ITS SERIES, U.S. FIXED INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of U.S. Fixed Income Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, and
the related statements of operations and of changes in net assets and the
financial highlights for the period November 1, 1998 (Commencement of
Operations) through October 31, 1999. 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 the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
October 31, 1999 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 October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the period November 1, 1998 (Commencement of Operations) through
October 31, 1999 in accordance with U.S. generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Chartered Acccountants
Toronto, Ontario
December 14, 1999
25
