LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 97.1%
CAPITAL GOODS/PRODUCER MANUFACTURER -- 0.4%
52,342 American Power Conversion Corp.+ $ 677,175
26,665 Illinois Tool Works Inc. 1,481,574
--------------------------------------------------------------------------------
2,158,749
--------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 10.8%
205,417 America Online Inc.+ 10,359,179
386,737 Microsoft Corp.+ 26,636,511
509,596 Oracle Corp.+ 16,816,668
32,600 Veritas Software Corp.+ 4,597,109
--------------------------------------------------------------------------------
58,409,467
--------------------------------------------------------------------------------
COMPUTER & TELECOMMUNICATIONS EQUIPMENT -- 22.2%
589,913 Cisco Systems Inc.+ 31,781,563
13,000 Comverse Technology Inc.+ 1,452,750
73,274 Corning Inc. 5,605,461
112,586 Dell Computer Corp.+ 3,321,287
193,268 EMC Corp.+ 17,212,931
139,843 International Business Machines Corp. 13,774,535
9,876 JDS Uniphase Corp.+ 804,277
26,215 Network Appliance Inc.+ 3,119,585
275,387 Nortel Networks Corp. 12,530,109
40,500 Qualcomm Inc.+ 2,636,930
114,000 Qwest Communications International Inc.+ 5,543,250
16,493 SDL Inc.+ 4,275,810
151,102 Sun Microsystems Inc.+ 16,753,434
34,071 Tellabs Inc.+ 1,701,421
--------------------------------------------------------------------------------
120,513,343
--------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
54,000 Automatic Data Processing Inc. 3,526,875
89,870 Concord EFS Inc.+ 3,712,754
48,392 Paychex Inc. 2,743,221
95,794 Time Warner Inc. 7,271,723
98,000 Viacom Inc.+ 5,573,750
--------------------------------------------------------------------------------
22,828,323
--------------------------------------------------------------------------------
CONGLOMERATES -- 8.8%
867,807 General Electric Co. 47,566,671
--------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 3.6%
212,331 Coca Cola Co. 12,819,484
134,314 PepsiCo Inc. 6,505,834
--------------------------------------------------------------------------------
19,325,318
--------------------------------------------------------------------------------
CONSUMER SERVICES -- 1.1%
58,267 Carnival Corp. 1,445,750
33,577 Expeditores International Wash Inc. 1,741,807
62,218 Harley Davidson Inc. 2,998,130
--------------------------------------------------------------------------------
6,185,687
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
15 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
FINANCE -- 8.5%
116,714 American Express Co. $7,002,840
70,216 Bank of New York Inc. 4,041,808
9,000 Bear Stearns Inc. 545,625
123,944 Charles Schwab Corp. 4,353,533
72,093 Federal Home Loan Mortgage Corp. 4,325,580
109,624 Federal National Mortgage Association 8,441,048
28,146 Marsh & McLennan Company Inc. 3,680,090
104,614 MBNA Corp. 3,929,563
85,684 Morgan Stanley Dean Witter & Co. 6,881,496
16,700 Northern Trust Corp. 1,425,763
13,826 State Street Corp. 1,724,655
--------------------------------------------------------------------------------
46,352,001
--------------------------------------------------------------------------------
HEALTHCARE -- 19.8%
134,311 Abbott Labs 7,093,300
94,805 Amgen Inc.+ 5,492,765
112,586 American Home Products Corp. 7,149,211
150,114 Bristol Myers Squibb Co. 9,147,572
24,000 Cardinal Health Inc. 2,274,000
79,007 Eli Lilly & Co. 7,061,251
60,000 Health Management Associates+ 1,188,750
119,677 Johnson & Johnson 11,025,244
106,463 Medtronic Inc. 5,782,272
180,727 Merck & Co Inc. 16,254,135
654,247 Pfizer Inc. 28,255,292
133,520 Schering-Plough Corp. 6,901,315
--------------------------------------------------------------------------------
107,625,107
--------------------------------------------------------------------------------
RETAIL -- 8.2%
118,711 Bed Bath & Beyond Inc.+ 3,064,228
69,134 Gap Inc. 1,784,521
199,987 Home Depot 8,599,441
57,279 Kohl's Corp.+ 3,103,806
188,628 WalGreen Co. 8,606,153
425,849 Wal-Mart Stores Inc. 19,322,898
--------------------------------------------------------------------------------
44,481,047
--------------------------------------------------------------------------------
SEMI-CONDUCTORS -- 9.5%
37,528 Altera Corp.+ 1,536,302
72,587 Applied Materials Inc.+ 3,856,184
14,500 Broadcom Corp.+ 3,224,437
589,368 Intel Corp. 26,521,560
26,000 Jabil Circuit Inc.+ 1,483,625
27,653 Linear Technologies Corp. 1,785,347
24,691 Maxim Integrated Products Inc.+ 1,637,322
41,479 Microchip Technology Inc.+ 1,311,773
13,500 Sanmina Corp.+ 1,543,219
137,148 Texas Instruments Inc. 6,728,824
29,134 Xilinx Inc.+ 2,110,394
--------------------------------------------------------------------------------
51,738,987
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Identified Cost-- $432,658,826) 527,184,700
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
16 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.9%
First Union National Bank Repurchase
Agreement 6.45% due 11/1/00
proceeds at maturity $15,827,000
(Fully collateralized by Fannie Mae,
5.00% due 11/02/01
valued at $16,150,225)
(Identified Cost -- $15,827,000) $ 15,827,000
================================================================================
TOTAL INVESTMENTS
(IDENTIFIED COST -- $448,485,826) $543,011,700
================================================================================
+ NON-INCOME PRODUCING SECURITY
SEE NOTES TO FINANCIAL STATEMENTS
17 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $448,485,826) $543,011,700
Dividends and interest receivable 146,319
--------------------------------------------------------------------------------
TOTAL ASSETS 543,158,019
================================================================================
LIABILITIES:
Payable for participant withdrawals 2,370
Payable to affiliates-- Management fees (Note 2) 173,467
Payable to the custodian 279,891
Accrued expenses and other liabilities 377,935
--------------------------------------------------------------------------------
TOTAL LIABILITIES 833,663
--------------------------------------------------------------------------------
NET ASSETS $542,324,356
================================================================================
REPRESENTED BY: PAID-IN CAPITAL FOR BENEFICIAL INTERESTS $542,324,356
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
18 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME:
Dividend income $ 3,561,209
Interest income 1,144,669
-------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,705,878
===============================================================================
EXPENSES:
Management fees (Note 2) 3,944,108
Custody and fund accounting fees 149,112
Audit fees 23,530
Trustees fees 15,228
Legal fees 3,568
Other 5,649
-------------------------------------------------------------------------------
TOTAL EXPENSES 4,141,195
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 564,683
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 58,018,534
Unrealized depreciation of investments (39,456,044)
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 18,562,490
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 19,127,173
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
19 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 564,683 $ 286,398
Net realized gain on investment transactions 58,018,534 130,508,299
Unrealized appreciation (depreciation)
of investments (39,456,044) 16,171,002
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 19,127,173 146,965,699
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 142,787,874 301,816,661
Value of withdrawals (322,890,902) (356,386,616)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS (180,103,028) (54,569,955)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (160,975,855) 92,395,744
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 703,300,211 610,904,467
--------------------------------------------------------------------------------
END OF PERIOD $542,324,356 $703,300,211
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
20 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
------------------------------ 1997 -------------------
2000 1999 1998 (NOTE 1F) 1996 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $542,324 $703,300 $610,904 $324,913 $288,562 $246,158
Ratio of expenses to average net assets 0.63% 0.67% 0.71% 0.60%* 0.60% 0.60%
Ratio of net investment income to average net assets 0.09% 0.04% 0.23% 0.62%* 1.10% 1.73%
Portfolio turnover 80% 108% 53% 103% 90% 67%
===================================================================================================================================
</TABLE>
* ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
21 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Large Cap Growth Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Trust"), is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company which
was organized as a trust under the laws of the State of New York. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. The Investment Manager of the Portfolio is Citibank, N.A.
("Citibank").
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio are
as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income taxes
is necessary.
D. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
E. EXPENSES The Portfolio bears all costs of its operations other than expenses
specifically assumed by Citibank. Expenses incurred by the Trust with respect to
any two or more portfolios or series are allocated in proportion to the average
net assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to a
portfolio are charged to that portfolio.
F. CHANGE IN FISCAL YEAR END During the fiscal year 1997, the Portfolio changed
its fiscal year end from December 31 to October 31.
G. OTHER Investment transactions are accounted for on the date the investments
are purchased or sold. Realized gains and losses are determined on the
identified cost basis.
2. Management Fees
Citibank is responsible for overall management of the Portfolio's business
affairs, and has a separate Management Agreement with the Portfolio. Citibank or
an affiliate also provides certain administrative services to the Portfolio.
These administrative services include providing general office facilities and
supervising the overall administration of
22 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
the Portfolio. Citibank is a wholly-owned subsidiary of Citigroup Inc.
The management fees paid to Citibank amounted to $3,944,108 for the year ended
October 31, 2000. Management fees are computed at the annual rate of 0.60% of
the Portfolio's average daily net assets.
The Trust pays no compensation directly to any Trustee or any other officer who
is affiliated with the Manager, all of whom receive remuneration for their
services to the Trust from the Manager or its affiliates.
3. Purchases And Sales Of Investments
Purchases and sales of investments, other than short-term obligations,
aggregated $516,047,468 and $693,530,353, respectively, for the year ended
October 31, 2000.
4. Federal Income Tax Basis Of Investments
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 2000, as computed on a federal income tax basis,
are as follows:
================================================================================
Aggregate cost $447,237,275
--------------------------------------------------------------------------------
Gross unrealized appreciation $116,570,769
Gross unrealized depreciation (20,796,344)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 95,774,425
--------------------------------------------------------------------------------
5. Line of Credit
The Portfolio, along with various other Portfolios in the family of funds,
entered into an ongoing line of credit agreement with a bank which allows the
Funds and Portfolios collectively to borrow up to $75 million for temporary or
emergency purposes. Interest on the borrowings, if any, is charged to the
specific portfolio executing the borrowing at the base rate of the bank. The
line of credit requires a quarterly payment of a commitment fee based on the
average daily unused portion of the line of credit. For the year ended October
31, 2000, the commitment fee allocated to the Portfolio was $1,990. Since the
line of credit was established, there have been no borrowings.
23 | 2000 Annual Report to Shareholders
<PAGE>
LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS WITH RESPECT TO ITS
SERIES, LARGE CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Large Cap Growth Portfolio (the "Portfolio"), a
series of The Premium Portfolios, at October 31, 2000, and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian, provide
a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio at October 31, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 2000
24 | 2000 Annual Report to Shareholders
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
-----------------------------------------------------------
FIXED INCOME -- 72.7%
-----------------------------------------------------------
ASSET BACKED SECURITIES -- 33.3%
-----------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $349 $ 346,765
Aircraft Financial Trust
8.00% due 5/15/24 35 33,649
Amresco Residential Securities
6.245% due 4/25/22 419 415,385
Asset Securitization Corp.,
Series 95
7.384% due 8/13/29 393 397,982
First Union, Lehman Brothers
6.479% due 3/18/04 232 229,783
GE Capital Mortgage Services, Inc.
5.905% due 10/25/13 14 13,843
7.00% due 10/25/23 14 13,007
GMAC Commercial Mortgage Inc.
6.42% due 8/15/08 175 168,180
6.83% due 12/15/03 411 409,496
7.724% due 12/15/09 32 32,636
Green Tree Financial Corp.
6.71% due 8/15/29 670 628,317
8.05% due 10/15/27 550 553,964
8.41% due 12/1/30 673 623,227
IMC Home Equity Loan Trust
6.16% due 5/20/14 40 39,796
JP Morgan Commercial
Mortgage Financial Corp.
6.373% due 1/15/30 301 297,274
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 164 164,411
Morgan Stanley Capital
Investment Inc.
6.44% due 11/15/02 375 373,902
Nomura Asset Securitization Corp.
8.15% due 3/4/20 314 327,488
------------
5,069,105
------------
FOREIGN CORPORATIONS -- 2.9%
-----------------------------------------------------------
Merita Bank PLC
6.50% due 4/1/09 400 370,149
Ontario Province of Canada
5.50% due 10/1/08 16 14,577
Pemex Financial Ltd.
9.03% due 2/15/11 7 7,218
Quebec Province of Canada
7.50% due 9/15/29 14 14,488
Telefonica de Argentina
9.125% due 5/7/08 6 5,410
Telefonica Europe
7.75% due 9/15/10 13 12,868
Vodafone Airtouch PLC
7.75% due 2/15/10 12 12,622
YPF Sociedad Anonima
7.25% due 3/15/03 12 12,049
------------
449,381
------------
DOMESTIC CORPORATIONS -- 7.6%
-----------------------------------------------------------
Abitibi Consolidated Inc.
8.85% due 8/1/30 7 6,744
BB&T Corp.
6.375% due 6/30/05 218 209,941
Bank of America
7.80% due 2/15/10 13 13,019
Coastal Corp.
7.75% due 6/15/10 7 7,113
Conseco Inc.
8.17% due 12/15/25 18 18,038
Clear Channel Communications
7.25% due 9/15/03 6 6,337
DaimlerChrysler
7.75% due 5/27/03 12 12,051
Dayton Hudson Corp.
6.65% due 8/1/28 269 225,638
Donaldson, Lufkin & Jenrette
5.875% due 4/1/02 12 11,528
7.45% due 8/10/09 21 21,010
Ford Motor Co.
7.60% due 8/1/05 9 9,366
General Motor Acceptance Corp.
7.50% due 7/15/05 12 12,229
Hanson PLC
7.375% due 1/15/03 6 6,236
Lockheed Martin Corp.
8.20% due 12/1/09 6 6,636
MCI Communications Corp.
6.50% due 4/15/10 107 98,045
Merrill Lynch & Co., Inc.
7.08% due 10/3/05 13 12,604
Meyer Fred Inc.
7.375% due 3/1/05 6 6,226
Morgan Stanley Dean Witter & Co.
5.625% due 1/20/04 161 154,802
National Rural Utilities
6.20% due 2/1/08 270 252,934
Northwest Airlines
8.072% due 10/1/19 14 14,045
17
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
-----------------------------------------------------------
DOMESTIC CORPORATIONS -- (CONT'D.)
-----------------------------------------------------------
Osprey Trust Inc.
8.31% due 1/15/03 $ 6 $ 6,369
Popular North America, Inc.
6.875% due 6/15/01 11 11,460
Tosco Corp.
8.125% due 2/15/03 7 7,114
Tyco International Group
6.875% due 9/5/02 13 12,896
U.S. West Communications, Inc.
7.625% due 6/9/03 6 6,386
Wells Fargo Bank
7.875% due 6/15/10 12 11,974
------------
1,160,741
------------
MORTGAGE OBLIGATIONS -- 18.0%
-----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 11.7%
Asset Backed Securitization Corp.,
6.64% due 12/25/27 16 14,234
CMC Securitization Corp.,
Series 97
7.00% due 10/25/27 89 88,760
CWMBS Inc., Series 98
6.50% due 7/25/13 464 439,704
Chase Mortgage Financial Trust
6.50% due 9/25/13 455 430,098
7.25% due 2/25/30 18 16,899
Credit Suisse First Boston
Mortgage
7.29% due 9/15/09 27 27,587
Federal Home Loan
Mortgage Corp.
6.00% due 1/15/24 7 6,598
6.25% due 6/15/24 594 577,479
Federal National Mortgage
Association
7.413% due 8/17/21 108 109,105
Government National
Mortgage Association
7.25% due 10/16/22 46 45,778
Residential Asset Securitization
Trust
7.00% due 2/25/08 20 20,276
------------
1,776,518
------------
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 3.2%
-----------------------------------------------------------
Federal National Mortgage Association
6.50% due 4/1/29 25 24,372
6.50% due 5/1/29 376 361,627
7.00% due 6/1/03 29 29,389
7.00% due 7/1/03 49 48,788
8.50% due 10/1/30 21 21,476
------------
485,652
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 3.1%
-----------------------------------------------------------
7.00% due 2/15/24 486 480,295
------------
TOTAL MORTGAGE OBLIGATIONS 2,742,465
------------
YANKEE BONDS -- 1.5%
-----------------------------------------------------------
Corporacion Andina de Fomento
7.75% due 3/1/04 216 216,881
Finland Republic
6.95% due 2/15/26 5 4,951
Imperial Tobacco Overseas
7.125% due 4/1/09 7 6,108
------------
227,940
------------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 9.4%
-----------------------------------------------------------
UNITED STATES TREASURY BONDS -- 7.6%
-----------------------------------------------------------
8.125% due 8/15/19 7 8,263
3.625% due 4/15/28* 722 693,632
3.875% due 4/15/29* 413 414,911
6.125% due 8/15/29 33 34,369
------------
1,151,175
------------
UNITED STATES TREASURY NOTES -- 1.8%
-----------------------------------------------------------
6.50 % due 5/31/01 257 256,943
6.875 % due 5/15/06 9 9,544
5.75 % due 8/15/10 7 7,350
------------
273,837
------------
TOTAL UNITED STATES
GOVERNMENT & OTHER
GOVERNMENT OBLIGATIONS 1,425,012
------------
TOTAL FIXED INCOME
(Identified Cost $11,422,739) 11,074,644
------------
PREFERRED STOCK -- 4.0%
-----------------------------------------------------------
Comed Financing I
(Identified Cost $660,145) 26 609,336
------------
18
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 2000
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
-----------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 22.8%
-----------------------------------------------------------
First Union National Bank
Repurchase Agreement 6.45% due,
11/01/00 proceeds at maturity
$2,790,500 (collateralized by
$2,820,000 Federal Home Loan Bank
7.52% due 8/24/04, valued at
$2,855,250) $ 2,790,000
United States Treasury Bills
5.94% due, 12/21/00 690 684,308
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost $3,474,308) 3,474,308
------------
ISSUER VALUE
-----------------------------------------------------------
TOTAL INVESTMENTS
(Identified Cost $15,557,192) 99.5% $15,158,288
OTHER ASSETS,
LESS LIABILITIES 0.5 70,266
====== ============
NET ASSETS 100.0% $15,228,554
====== ============
FUTURES CONTRACTS
--------------------------------------------------------------------------------
Futures contracts which were open at October 31, 2000 are as follows:
AGGREGATE
DESCRIPTION/ NUMBER OF FACE VALUE EXPIRATION UNREALIZED
POSITION CONTRACTS OF CONTRACTS DATE GAIN/(LOSS)
--------------------------------------------------------------------------------
U.S. Long Bond (buy) 30 $ 3,000,000 Dec-00 $(16,118)
U.S. Five Year Note (buy) 45 4,500,000 Dec-00 42,621
U.S. Ten Year Note (sell) (55) (5,500,000) Dec-00 (45,447)
--------
$(18,944)
========
* Security indexed to inflation rate.
See notes to financial statements
19
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
===============================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $12,082,884) $11,683,980
Short-term obligations at value (Note 1A)
(Identified Cost, $3,474,308) 3,474,308
Cash 34
Interest receivable 114,397
Receivable for investments sold 8,724,375
-------------------------------------------------------------------------------
Total assets 23,997,094
-------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 8,695,313
Payable for daily variation on futures contracts 354
Payable to affiliates--Management Fee (Note 2) 26,179
Accrued expenses and other liabilities 46,694
-------------------------------------------------------------------------------
Total liabilities 8,768,540
-------------------------------------------------------------------------------
NET ASSETS $15,228,554
===============================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $15,228,554
===============================================================================
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
===============================================================================
INVESTMENT INCOME (Note 1B):
Interest Income $ 14,977,220
Dividend Income 292,513
-------------------------------------------------------------------------------
$15,269,733
-------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 741,829
Custody and fund accounting fees 102,192
Audit fees 32,830
Trustees fees 9,256
Legal fees 17,701
Other 1,347
-------------------------------------------------------------------------------
Total expenses 905,155
Less aggregate amount waived by management (Note 2) (57,305)
-------------------------------------------------------------------------------
Net expenses 847,850
-------------------------------------------------------------------------------
Net investment income 14,421,883
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (12,681,856)
Net realized gain from futures and options
transactions 474,049
Unrealized appreciation of investments and
futures contracts 10,318,592
-------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1,889,215)
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,532,668
===============================================================================
See notes to financial statements
20
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1998
FOR THE YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
OCTOBER 31, 2000 OCTOBER 31, 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 14,421,883 $ 11,466,863
Net realized loss from investment and
futures transactions (12,207,807) (5,810,514)
Unrealized appreciation (depreciation)
of investments 10,318,592 (7,440,597)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 12,532,668 (1,784,248)
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 6,152,490 452,433,828
Value of withdrawals (294,992,202) (159,113,982)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital transactions (288,839,712) 293,319,846
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (276,307,044) 291,535,598
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 291,535,598 --
--------------------------------------------------------------------------------
End of period $ 15,228,554 $291,535,598
================================================================================
U.S. FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1998
FOR THE YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
OCTOBER 31, 2000 OCTOBER 31, 1999
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $15,229 $291,536
Ratio of expenses to average net assets 0.40% 0.40%
Ratio of net investment income to average
net assets 6.81% 6.04%
Portfolio turnover 346% 253%
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 law, the ratios would
have been as follows:
RATIOS:
Expenses to average net assets 0.43% --
Net investment income to average net assets 6.78% --
================================================================================
See notes to financial statements
21
<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"). SSB Citi Fund Management LLC ("SSB
Citi") 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 accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
The significant accounting policies consistently followed by the 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 (maturing in sixty days or less)
are valued at amortized cost, which approximates market value. Securities, if
any, for which there are no such valuations or quotations are valued at fair
value as determined in good faith by or under guidelines established by the
Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as ordinary income.
22
<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. 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 0.01% 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.
23
<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. During the past fiscal
year, CFBDS, Inc. ("CFBDS") acted as Sub-Administrator and performed such duties
and received such compensation from Citibank as from time to time was agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citigroup Inc.
The management fees paid to Citibank amounted to $741,829 of which $57,305
was voluntarily waived for the year ended October 31, 2000. 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 $776,939,252 and $1,086,288,713,
respectively, for the year ended October 31, 2000.
24
<PAGE>
U.S. FIXED INCOME 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, 2000,
as computed on a federal income tax basis, are as follows:
Aggregate cost $15,557,192
================================================================================
Gross unrealized appreciation $ 21,268
Gross unrealized depreciation (420,172)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (398,904)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Funds and Portfolios
in the family of funds, entered into an ongoing line of credit agreement with a
bank which allows the Funds and Portfolios collectively to borrow up to $75
million for temporary or emergency purposes. Interest on the borrowings, if any,
is charged to the specific fund or portfolio executing the borrowing at the base
rate of the bank. The line of credit requires a quarterly payment of a
commitment fee based on the average daily unused portion of the line of credit.
For the year ended October 31, 2000, the commitment fee allocated to the
Portfolio was $641. Since the line of credit was established, there have been no
borrowings.
6. SUBSEQUENT EVENT The Portfolio is expected to cease its operations on or
about December 15, 2000 and remit any remaining capital balances to existing
holders of beneficial interest in Portfolio at such time of liquidation.
25
<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, at October 31, 2000, and the
related statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio at October 31, 2000, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with accounting principles
generally accepted in the United States of America.
As more fully described in Note 6, the Portfolio is expected to cease
operations and liquidate on or about December 15, 2000.
PricewaterhouseCoopers LLP
Chartered Acccountants
Toronto, Ontario
December 14, 2000
26
