<PAGE>
Semi-Annual Report o June 30, 1998
[Logo]
Balanced Portfolio
GROWTH WITH INCOME
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INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Portfolio Highlights 4
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Fund Performance 5
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CITIFUNDS BALANCED PORTFOLIO
Statement of Assets and Liabilities 6
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Statement of Operations 7
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Statement of Changes in Net Assets 8
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Financial Highlights 9
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Notes to Financial Statements 10
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BALANCED PORTFOLIO
Portfolio of Investments 14
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Statement of Assets and Liabilities 18
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Statement of Operations 18
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Statement of Changes in Net Assets 19
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Financial Highlights 19
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Notes to Financial Statements 20
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1998, through June 30,
1998, for the CitiFunds(SM) Balanced Portfolio. Inside, the CitiFunds'
investment manager, Citibank, N.A., discusses the market conditions it faced,
the strategies it employed and its outlook for the future.
Overall, the past six months were generally positive for the U.S. stock and
bond markets. Moderate economic growth, low inflation and an unchanged U.S.
monetary policy helped most sectors of the bond market produce attractive total
rates of return for the six-month period. And despite heightened volatility in
May and June, many stocks performed well overall.
Among the highlights of the reporting period, your fund has changed its name
to CitiFunds(SM) Balanced Portfolio, and management of the equity portion of the
portfolio was assumed by Barbara Marcin, a Citibank Vice President with more
than 10 years of investment management experience. Ms. Marcin employs a
value-oriented investment approach. For more information about the value style
of investing, see the discussion inside.
In addition, as you have probably heard, Citicorp recently announced its
intention to merge with The Travelers Group. The completion of the merger is
subject to the satisfaction of certain conditions. As necessary, we will provide
you with information that specifically affects the fund.
On behalf of the Board of Trustees, we want to thank you for your continued
participation and confidence in the CitiFunds family of funds.
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 16, 1998
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
Despite stronger-than-expected economic growth, inflation remained low during
the first six months of 1998. Even reports of record-high employment levels and
robust consumer consumption failed to ignite inflationary pressures. These
influences had positive implications for both stocks and bonds during the first
three months of the year.
In the bond market, short-term yields generally remained stable because they
are based on the federal funds rate, which is set by the Federal Reserve Board
and remained unchanged over the past six months. Yields on intermediate-term and
long-term bonds, which are determined by the marketplace, declined modestly. As
a result, because bond prices rise when their yields decline, the intermediate-
and long-term sectors of the bond market provided total returns higher than
their coupons. The stock market also benefitted early in the year because
corporate earnings remained strong. Many equity investors were pleasantly
surprised that, despite lower export levels, economic turmoil in Asia did not
adversely affect the earnings of U.S. companies as much as they anticipated
during the first quarter.
During the second quarter of 1998, however, equity investors began to see a
more pronounced slow-down of corporate earnings growth, especially among
companies with exposure to Asian markets. In May and June, further deterioration
of the Asian markets created a high level of volatility in the U.S. stock
market. In contrast, the U.S. bond market rallied modestly in anticipation of
slower economic growth, continued low inflation and an unchanged monetary
policy.
AS OF JANUARY 14, 1998, THE PORTFOLIO ADOPTED A VALUE-ORIENTED APPROACH TO
EQUITY MANAGEMENT, focusing on established companies priced below the discounted
value of their expected future cash flows. We look for companies with good
longer term prospects, but whose stocks are selling at valuations lower than
broader market averages. Our strategy is to buy these stocks when they are
believed to be inexpensively priced and hold them until their true values are
reached.
Over the past six months, we found attractive values in financial companies,
which benefitted from low interest rates, as well as certain oil services and
drilling companies, whose stocks have languished because of the low current
price of oil. We also found good values in a number of cyclical companies, which
have been severely punished by investors because of concern about the Asian
crisis. On the other hand, we have few investments in consumer growth companies.
Many of these companies are well managed and profitable, but their recent
performance has increased their valuations to a level we regard as too
expensive.
THE PORTFOLIO'S FIXED-INCOME PORTION HAS MANAGED TO CAPTURE HIGH YIELDS
commensurate with its risk profile. We maintained a relatively long average
duration, which is a measure of the portfolio's sensitivity to changes in
interest rates, in order to enjoy higher, existing yields for as much time as
possible. We also allocated the portfolio's assets among the various market
sectors in an attempt to maximize exposure to those fixed-income securities
providing the best relative values. We found particularly good values in
asset-backed securities, which are secured by high-quality debt obligations such
as automobile loans, home equity loans and commercial mortgages. We also
participated in the U.S. Treasury securities market, which benefitted from
declining issuance amid robust demand from investors seeking a safe haven.
WE ARE OPTIMISTIC ABOUT THE U.S. ECONOMY, THE BOND MARKET AND THE STOCK
MARKET over the long term, but we expect heightened volatility over the short
term, especially in the stock market. In our view, U.S. economic growth will
ultimately slow during the second half of 1998 because of the fall-out from
Asia. At the same time, competition from foreign manufacturers and domestic
productivity improvements should held keep the inflation rate low.
We believe that lower demand for U.S. goods and lower prices for imports from
Asia during the second half of the year are likely to constrain earnings growth
for many domestic companies. If investors are disappointed by corporate
earnings, we expect the stock market to trade near current levels, albeit with
heightened volatility, over the near term. Over the longer term, however, we
remain encouraged by the U.S. economy's continuing prospects for strong growth
and low inflation. If positive economic conditions persist, we believe corporate
earnings and stock prices should move higher.
In the U.S. bond market, we expect these economic influences to allow
long-term yields to move modestly lower, potentially benefitting the various
market sectors in which the fixed-income portion of CitiFunds Balanced Portfolio
invests. Of course, we will continue to monitor the economy and financial
markets, making every effort to meet the Fund's investment objective.
FUND FACTS
FUND OBJECTIVE
To earn high current income by investing in a broad range of securities, to
preserve capital and to provide growth potential with reduced risk.
INVESTMENT ADVISER, DIVIDENDS
BALANCED PORTFOLIO Paid quarterly, if any
Citibank, N.A.
CAPITAL GAINS
COMMENCEMENT OF OPERATIONS Distributed semi-annually, if any
October 19, 1990
BENCHMARKS
NET ASSETS AS OF 6/30/98 o Standard & Poor's Barra Growth Index
$238.2 million o Lehman Government/Corporate Bond Index
o Lipper Balanced Funds Average
<PAGE>
PORTFOLIO HIGHLIGHTS
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TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 1998 (Unaudited)
COMPANY, INDUSTRY% OF NET ASSETS
Chase Manhattan Corp., Finance 2.5%
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AT&T Corp., Consumer Services 2.5%
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Lehman Brothers Holdings Inc., Finance 2.1%
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Safeco Corp., Finance 1.9%
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Nationsbank Corp., Finance 1.8%
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Halliburton Co., Producer Manufacturing 1.8%
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Everest Reinsurance Holdings, Finance 1.7%
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E.I. du Pont de Nemours & Co., Basic Industries 1.6%
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Exxon Corp., Producer Manufacturing 1.6%
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USA Waste Services Inc., Industrial Services 1.6%
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PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1998 (Unaudited)
Stocks ........................................... 60%
Treasuries ....................................... 13%
Other Bonds ...................................... 25%
*Short-Term ...................................... 2%
*Includes cash and net other assets.
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ALL PERIODS ENDED JUNE 30, 1998 SIX ONE FIVE 10/19/90
(Unaudited) MONTHS** YEAR YEARS* INCEPTION*
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CitiFunds Balanced Portfolio 7.85% 16.86% 11.86% 13.68%
Lipper Balanced Funds Average 8.95% 17.58% 13.91% 14.56%
S&P Barra Growth Index 23.07% 34.73% 25.33% 22.70%
Lehman Government/Corporate Bond Index 4.17% 11.28% 6.88% 9.13%
* Average Annual Total Return
** Not Annualized
+ From 10/31/90
30-Day SEC Yield 2.60%
Income Dividends Per Share $0.140
Capital Gain Distribution $0.455
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on 10/31/90 would have grown to $26,845 as
of June 30, 1998. The graph shows how the Fund compares to its benchmarks for
the same period.
CitiFunds Lipper S&P Lehman
Balance Balanced Barra Gov/Corp
Date Fund Funds Avg. Growth Index Bond Avg.
---- --------- ---------- ----------- ---------
10/19/90 $10,000
10/31/90 $ 9,826 $10,000 $10,000 $10,000
11/30/90 $10,369 $10,435 $10,604 $10,218
12/31/90 $10,609 $10,677 $10,941 $10,372
1/31/91 $11,105 $11,034 $11,396 $10,488
2/28/91 $11,673 $11,521 $12,280 $10,579
3/31/91 $11,816 $11,725 $12,744 $10,652
4/30/91 $11,827 $11,753 $12,720 $10,774
5/31/91 $12,264 $12,099 $13,200 $10,824
6/30/91 $11,837 $11,726 $12,649 $10,812
7/31/91 $12,403 $12,122 $13,325 $10,947
8/31/91 $12,886 $12,434 $13,754 $11,199
9/30/91 $12,713 $12,450 $13,453 $11,433
10/31/91 $12,945 $12,633 $13,617 $11,535
11/30/91 $12,723 $12,354 $13,270 $11,650
12/31/91 $13,751 $13,358 $15,140 $12,042
1/31/92 $13,496 $13,242 $14,608 $11,864
2/29/92 $13,698 $13,401 $14,695 $11,927
3/31/92 $13,530 $13,203 $14,354 $11,862
4/30/92 $13,583 $13,323 $14,506 $11,933
5/31/92 $13,658 $13,462 $14,619 $12,164
6/30/92 $13,417 $13,317 $14,316 $12,342
7/31/92 $13,868 $13,714 $14,962 $12,658
8/31/92 $13,664 $13,584 $14,790 $12,770
9/30/92 $13,910 $13,755 $14,964 $12,945
10/31/92 $14,115 $13,756 $15,189 $12,747
11/30/92 $14,569 $14,096 $15,803 $12,737
12/31/92 $14,690 $14,357 $15,907 $12,955
1/31/93 $14,798 $14,551 $15,735 $13,237
2/28/93 $14,776 $14,647 $15,608 $13,513
3/31/93 $15,288 $14,922 $15,828 $13,559
4/30/93 $15,091 $14,738 $15,098 $13,663
5/31/93 $15,331 $14,980 $15,636 $13,656
6/30/93 $15,326 $15,148 $15,503 $13,966
7/31/93 $15,206 $15,172 $15,183 $14,056
8/31/93 $15,688 $15,630 $15,737 $14,379
9/30/93 $15,677 $15,683 $15,497 $14,429
10/31/93 $15,809 $15,824 $16,073 $14,488
11/30/93 $15,644 $15,593 $16,062 $14,325
12/31/93 $15,935 $15,869 $16,174 $14,388
1/31/94 $16,282 $16,255 $16,520 $14,603
2/28/94 $15,958 $15,936 $16,225 $14,285
3/31/94 $15,350 $15,350 $15,475 $13,935
4/30/94 $15,440 $15,379 $15,545 $13,819
5/31/94 $15,643 $15,451 $15,798 $13,795
6/30/94 $15,282 $15,168 $15,462 $13,763
7/31/94 $15,702 $15,511 $15,955 $14,038
8/31/94 $16,020 $15,908 $16,807 $14,044
9/30/94 $15,590 $15,620 $16,567 $13,832
10/31/94 $15,818 $15,712 $16,953 $13,816
11/30/94 $15,430 $15,325 $16,397 $13,792
12/31/94 $15,607 $15,454 $16,680 $13,883
1/31/95 $15,804 $15,646 $17,094 $14,149
2/28/95 $16,300 $16,117 $17,761 $14,477
3/31/95 $16,602 $16,393 $18,318 $14,574
4/30/95 $16,811 $16,693 $18,794 $14,778
5/31/95 $17,450 $17,231 $19,467 $15,398
6/30/95 $17,624 $17,553 $20,213 $15,521
7/31/95 $17,847 $17,957 $20,858 $15,460
8/31/95 $17,835 $18,111 $20,789 $15,658
9/30/95 $18,233 $18,515 $21,816 $15,818
10/31/95 $18,256 $18,471 $21,990 $16,050
11/30/95 $18,892 $19,036 $22,782 $16,315
12/31/95 $19,144 $19,295 $23,039 $16,555
1/31/96 $19,474 $19,642 $23,920 $16,658
2/29/96 $19,291 $19,713 $24,137 $16,305
3/31/96 $19,339 $19,790 $24,036 $16,168
4/30/96 $19,327 $19,996 $24,505 $16,056
5/31/96 $19,511 $20,242 $25,406 $16,029
6/30/96 $19,746 $20,262 $25,724 $16,242
7/31/96 $19,190 $19,709 $24,538 $16,279
8/31/96 $19,400 $20,068 $24,901 $16,239
9/30/96 $20,130 $20,811 $26,629 $16,528
10/31/96 $20,304 $21,198 $27,207 $16,913
11/30/96 $21,025 $22,146 $29,240 $17,224
12/31/96 $20,597 $21,913 $28,564 $17,033
1/31/97 $21,270 $22,513 $30,801 $17,053
2/28/97 $21,204 $22,540 $31,059 $17,089
3/31/97 $20,449 $21,913 $29,585 $16,886
4/30/97 $21,563 $22,511 $31,972 $17,132
5/31/97 $22,226 $23,465 $33,868 $17,292
6/30/97 $22,973 $24,148 $35,585 $17,499
7/31/97 $24,168 $25,500 $38,404 $18,034
8/31/97 $23,014 $24,834 $35,850 $17,832
9/30/97 $23,823 $25,765 $37,678 $18,112
10/31/97 $23,727 $25,322 $36,544 $18,402
11/30/97 $24,569 $25,697 $38,528 $18,500
12/31/97 $24,891 $26,034 $39,002 $18,694
1/31/98 $25,207 $26,195 $40,313 $18,958
2/28/98 $26,091 $27,274 $43,114 $18,920
3/31/98 $27,166 $28,040 $45,343 $18,978
4/30/98 $27,245 $28,219 $45,724 $19,073
5/31/98 $26,754 $27,934 $44,805 $19,277
6/30/98 $26,845 $28,350 $47,999 $19,474
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors. Returns reflect certain voluntary fee
waivers. If the waivers were not in place, the Fund's return would have been
lower.
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
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ASSETS:
Investment in Balanced Portfolio, at value (Note 1A) $238,006,988
Receivable for shares of beneficial interest sold 517,249
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Total assets 238,524,237
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LIABILITIES:
Payable for shares of beneficial interest repurchased 240,176
Payable to affiliates - Shareholder servicing agents' fees
(Note 2B) 48,428
Accrued expenses and other liabilities 42,585
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Total liabilities 331,189
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NET ASSETS for 14,514,525 shares of beneficial interest
outstanding $238,193,048
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NET ASSETS CONSIST OF:
Paid-in capital $193,995,601
Unrealized appreciation of investments 12,848,304
Accumulated net realized gain 30,405,254
Undistributed net investment income 943,889
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Total $238,193,048
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NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $16.41
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See notes to financial statements
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
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INVESTMENT INCOME (Note 1B):
Interest Income from Balanced Portfolio $ 2,908,681
Dividend Income from Balanced Portfolio 1,186,789
Allocated Expenses from Balanced Portfolio (642,860)
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$ 3,452,610
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B) 292,096
Administrative fees (Note 2A) 292,096
Distribution fees (Note 3) 175,258
Expense fees (Note 6) 23,504
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Total expenses 782,954
Less aggregate amount waived by Administrator and
Distributor (Note 2A and 3) (233,896)
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Net expenses 549,058
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Net investment income 2,903,552
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NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
BALANCED PORTFOLIO:
Net realized gain 30,559,698
Net change in unrealized appreciation (depreciation) (15,979,562)
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Net realized and unrealized gain from Balanced
Portfolio 14,580,136
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,483,688
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See notes to financial statements
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(Unaudited) DECEMBER 31, 1997
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<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 2,903,552 $ 5,566,995
Net realized gain 30,559,698 31,219,711
Net change in unrealized appreciation (depreciation) (15,979,562) 6,454,406
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Net increase in net assets resulting from operations 17,483,688 43,241,112
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,965,760) (5,565,112)
Net realized gain (6,392,515) (32,774,535)
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Decrease in net assets from distributions to shareholders (8,358,275) (38,339,647)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares 10,456,916 1,958,850
Net asset value of shares issued to shareholders
from reinvestment of distributions 8,352,560 38,314,267
Cost of shares repurchased (16,532,304) (48,766,609)
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Net increase (decrease) in net assets from transactions
in shares of beneficial interest 2,277,172 (8,493,492)
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Net Increase (Decrease) in Net Assets 11,402,585 (3,592,027)
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NET ASSETS:
Beginning of period 226,790,463 230,382,490
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End of period (including undistributed net investment
income of $943,889 and $6,097, respectively) $238,193,048 $226,790,463
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</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
CITIFUNDS BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 15.77 $ 15.61 $ 15.71 $ 13.52 $ 14.24 $ 13.54
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Income From Operations:
Net investment income 0.205 0.421 0.497 0.486 0.399 0.336#
Net realized and
unrealized gain (loss) 1.030 2.726 0.680 2.540 (0.695) 0.803#
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Total from operations 1.235 3.147 1.177 3.026 (0.296) 1.139
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Less Distributions From:
Net investment income (0.140) (0.421) (0.497) (0.495) (0.394) (0.319)
Net realized gain (0.455) (2.566) (0.780) (0.341) (0.030) (0.120)
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Total distributions (0.595) (2.987) (1.277) (0.836) (0.424) (0.439)
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Net Asset Value,
end of period $ 16.41 $ 15.77 $ 15.61 $ 15.71 $ 13.52 $ 14.24
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $238,193 $226,790 $230,382 $246,002 $227,309 $265,216
Ratio of expenses to
average net assets 1.02%(A)* 1.02%(A) 1.02%(A) 1.02%(A) 1.02%(A) 1.04%
Ratio of net investment income
to average net assets 2.49%* 2.44% 3.04% 3.21% 2.82% 2.46%
Portfolio turnover (B) -- -- -- -- 29% 101%
Total return 7.85%** 20.85% 7.59% 22.66% (2.06%) 8.48%
Note: If Agents of the Fund for the periods indicated had not voluntarily waived
a portion of their fees the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.189 $ 0.387 $ 0.464 $ 0.463 $ 0.378 $0.310#
RATIOS:
Expenses to average net assets 1.22%*(A) 1.22%(A) 1.22%(A) 1.17%(A) 1.17%(A) 1.23%
Net investment income to
average net assets 2.29%* 2.24% 2.84% 3.06% 2.67% 2.27%
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* Annualized
** Not Annualized
# The per share amounts were computed using a monthly average number of shares
outstanding during the year. (A) Includes the Fund's share of Balanced
Portfolio allocated expenses for the periods indicated.
(B) Portfolio turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
+ On May 1, 1994 the Fund began investing all of its investable assets in
Balanced Portfolio.
See notes to financial statements
</TABLE>
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Balanced Portfolio (formerly
Landmark Balanced Fund) (the "Fund") is a separate diversified series of
CitiFunds Trust I (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund invests all of its investable assets in
Balanced Portfolio (the "Portfolio"), a management investment company for which
Citibank, N.A. ("Citibank") serves as Investment Adviser. CFBDS, Inc ("CFBDS"),
(formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's
Administrator and Distributor. Citibank also serves as Sub-Administrator and
makes Fund shares available to customers as Shareholder Servicing Agent.
Citibank is a wholly-owned subsidiary of Citicorp. Citicorp recently announced
its intention to merge with The Travelers Group. Completion of the merger is
subject to the satisfaction of certain conditions.
The Trust seeks to achieve the Fund's investment objectives of earning high
current income, preservation of capital and providing growth potential with
reduced risk by investing all of its investable assets in the Portfolio, an
open-end, diversified management investment company having the same investment
objectives and policies and substantially the same investment restrictions as
the Fund. The value of such investment reflects the Fund's proportionate
interest (89.7% at June 30, 1998) in the net assets of the Portfolio.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The significant accounting policies consistently followed by the Fund are as
follows:
A. Investment Valuation Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.
B. Investment Income The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio.
C. Federal Taxes The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary.
D. Expenses The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. Distributions Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended December
31, 1997, the Fund reclassified $1,148,430 from paid-in capital to accumulated
net realized gain on investments.
F. Other All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.
2. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services
Plan (the "Administrative Services Plan") which provides that the Trust, on
behalf of the Fund, may obtain the services of an Administrator, one or more
Shareholder Servicing Agents and other Servicing Agents and may enter into
agreements providing for the payment of fees for such services. Under the Trust
Administrative Services Plan, the aggregate of the fee paid to the Administrator
from the Fund, the fees paid to the Shareholder Servicing Agents from the Fund
under such Plan and the Basic Distribution Fee paid from the Fund to the
Distributor under the Distribution Plan may not exceed 0.65% of the Fund's
average daily net assets on an annualized basis for the Fund's then current
fiscal year.
A. Administrative Fees Under the terms of an Administrative Services
Agreement, the administrative fees paid to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $292,096, of which $117,003 was voluntarily
waived for the six months ended June 30, 1998. Citibank acts as
Sub-Administrator and performs such duties and receives such compensation from
CFBDS as from time to time is agreed to by CFBDS and Citibank. The Fund pays no
compensation directly to any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Fund from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Fund are officers or directors of the Administrator or its affiliates.
B. Shareholder Servicing Agents' Fees The Trust, on behalf of the Fund, has
entered into shareholder servicing agreements with each Shareholder Servicing
Agent pursuant to which that Shareholder Servicing Agent acts as an agent for
its customers and provides other related services. For their services, each
Shareholder Servicing Agent receives fees from the Fund, which may be paid
periodically, which may not exceed, on an annualized basis, an amount equal to
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Shareholder
Servicing Agents' fees amounted to $292,096 for the six months ended June 30,
1998.
3. DISTRIBUTION FEES The Fund has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.15% of the
Fund's average daily net assets. The Distribution fees amounted to $175,258, of
which $116,893 was voluntarily waived for the six months ended June 30, 1998.
The Distributor may also receive an additional fee from the Fund at an annual
rate not to exceed 0.05% of the Fund's average daily net assets in anticipation
of, or as reimbursement for, advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund. The additional fee has not been
assessed through June 30, 1998. The Distributor has voluntarily agreed to waive
this fee through June 30, 1998.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the six months ended June 30, 1998 aggregated $3,239,315 and
$10,421,117, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(Unaudited) 1997
- --------------------------------------------------------------------------------
Shares sold 617,135 118,898
Shares issued to shareholders from
reinvestment of distribution 509,666 2,424,021
Shares repurchased (988,941) (2,924,022)
- --------------------------------------------------------------------------------
Net increase (decrease) 137,860 (381,103)
- --------------------------------------------------------------------------------
6. EXPENSE FEES CFBDS has entered into an expense agreement with the Fund. CFBDS
has agreed to pay all of the ordinary operating expenses (excluding interest,
taxes, brokerage commissions, litigation costs or other extraordinary costs or
expenses) of the Fund, other than fees paid under the Administrative Services
Agreement, Distribution Agreement, and the Shareholder Servicing Agreements. The
Agreement may be terminated by either party upon not less than 30 days nor more
than 60 days written notice.
The Fund has agreed to pay CFBDS an expense fee on an annual basis, accrued
daily and paid monthly; provided, however, that such fee shall not exceed the
amount such that immediately after any such payment the aggregate expenses of
the Fund including expenses allocated from the Portfolio less expenses waived by
the Administrator and Distributor would, on an annual basis, exceed an agreed
upon rate, currently 1.02% of average daily net assets.
<PAGE>
Balanced Portfolio
PORTFOLIO OF INVESTMENTS June 30, 1998
(Unaudited)
Issuer Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 59.7%
- --------------------------------------------------------------------------------
BASIC INDUSTRIES -- 6.7%
- --------------------------------------------------------------------------------
Barrick Gold Corp. 111,000 $ 3,146,400
Crown Cork & Seal Inc. 31,000 1,472,500
E. I. du Pont de Nemours & Co. 58,300 4,350,638
Mead Corp. 75,900 2,409,825
Premark International Inc. 25,500 822,375
Union Pacific Corp. 72,700 3,207,888
Weyerhauser Co. 48,500 2,240,093
------------
17,649,719
------------
CONSUMER DURABLES -- 3.8%
- --------------------------------------------------------------------------------
American Home Products Corp. 60,800 2,129,813
Goodyear Tire and Rubber 58,300 3,756,706
Meritor Automotive Inc. 142,700 3,424,800
Sunbeam Corp. 81,800 848,675
------------
10,159,994
------------
CONSUMER NON-DURABLES -- 1.8%
- --------------------------------------------------------------------------------
Federated Department Stores Inc.* 61,000 3,282,563
Toys "R" Us Inc.* 57,800 1,361,912
------------
4,644,475
------------
CONSUMER SERVICES -- 7.4%
- --------------------------------------------------------------------------------
AT&T Corp. 114,300 6,529,388
Bell Atlantic Corp. 83,000 3,786,875
Bellsouth Corp. 47,500 3,188,437
McDonalds Corp. 46,900 3,236,100
SBC Communications Inc. 75,500 3,020,000
------------
19,760,800
------------
ELECTRONICS/TECHNICAL SERVICES -- 6.5%
- --------------------------------------------------------------------------------
3COM Corp. 118,000 3,621,125
Compaq Computer Corp. 60,000 1,702,500
Hewlett Packard Co. 27,100 1,622,613
Intel Corp. 20,000 1,482,500
International Business Machines 14,400 1,653,300
Parker Hannifin Corp. 88,200 3,362,625
Sun Microsystems Inc. 79,900 3,470,656
------------
16,915,319
------------
FINANCE -- 15.5%
- --------------------------------------------------------------------------------
Bankers Trust Corp. 20,100 2,332,856
Burlington Resources Inc. 83,500 3,595,719
Chase Manhattan Corp. 87,600 6,613,800
Comed Financing 30,000 763,125
Everest Reinsurance Holdings 114,900 4,416,469
Federated Investment Inc. 46,470 859,695
Franklin Resources Inc. 37,200 2,008,800
J. P. Morgan Co. Inc. 31,400 3,677,725
Lehman Brothers Holdings Inc. 71,800 5,568,987
Nationsbank Corp. 62,400 4,773,600
Safeco Corp. 108,000 4,900,500
Washington Mutual Inc. 38,400 1,668,000
------------
41,179,276
------------
HEALTH SERVICES/TECHNOLOGY -- 1.5%
- --------------------------------------------------------------------------------
Oxford Health Plans Inc.* 119,800 1,834,438
Wellpoint Health Networks Inc.* 30,800 2,279,200
------------
4,113,638
------------
INDUSTRIAL SERVICES -- 1.6%
- --------------------------------------------------------------------------------
USA Waste Services Inc. 85,000 4,196,875
------------
PRODUCER MANUFACTURING -- 11.4%
- --------------------------------------------------------------------------------
Amerada Hess Corp. 42,500 2,308,281
American Electric Power Inc. 41,000 1,860,375
Cinergy Corp. 56,300 1,970,500
Deere & Co. 60,570 3,202,639
Diamond Offshore Drilling Inc. 74,200 2,968,000
Entergy Corp. 70,500 2,026,875
Exxon Corp. 59,200 4,221,700
Halliburton Co. 104,000 4,634,500
Mobil Corp. 54,300 4,160,737
Santa Fe International Corp. 98,400 2,976,600
------------
30,330,207
------------
MISCELLANEOUS -- 3.5%
- --------------------------------------------------------------------------------
Lucasvarsity PLC 59,500 2,368,844
Martin Marietta Materials Inc. 69,100 3,109,500
Raytheon Co. 67,170 3,971,426
------------
9,449,770
------------
TOTAL COMMON STOCK
(Identified Cost $148,617,755) 158,400,073
------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
FIXED INCOME -- 38.6%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- 4.2%
- --------------------------------------------------------------------------------
Aames Mortgage Trust 6.59% due 6/15/24 $1,040,000 $ 1,051,846
Contimortgage Home Equity Loan
6.28% due 1/15/13 1,000,000 1,000,310
6.13% due 3/15/13 1,100,000 1,100,660
6.57% due 3/15/23 1,000,000 1,003,600
6.87% due 3/15/24 1,040,000 1,061,496
Green Tree Financial Corp.
8.05% due 10/15/27 3,500,000 3,825,920
IMC Home Equity Loan
6.16% due 5/20/14 2,000,000 2,000,000
------------
11,043,832
------------
DOMESTIC CORPORATIONS -- 9.8%
- --------------------------------------------------------------------------------
Allied Signal Inc.
6.20% due 2/01/08 825,000 833,225
Associates Corp. N.A
5.96% due 5/15/37 1,750,000 1,814,015
Atlantic City Electric Co.
7.01% due 8/23/02 1,380,000 1,432,840
BB & T Corp.
6.375% due 6/30/05 1,120,000 1,118,566
Century Telecommunications Enterprises Inc.
6.30% due 1/15/08 1,000,000 985,910
Computer Associates
International Inc.
6.375% due 4/15/05 1,300,000 1,291,940
Conseco Inc.
6.40% due 6/15/01 1,145,000 1,144,267
Dayton Hudson Corp.
5.95% due 6/15/00 585,000 584,795
Donaldson Lufkin
& Jenrette
6.50% due 6/01/08 660,000 659,947
Equitable Life Assurance
6.95% due 12/01/05 1,375,000 1,427,429
Ford Motor Co.
6.625% due 2/15/28 1,000,000 1,000,830
GTE Corp.
6.36% due 4/15/06 $1,145,000 $ 1,139,584
Household Financial Corp.
6.40% due 6/17/08 600,000 599,783
Lehman Brothers Holding Inc.
6.15% due 3/15/00 500,000 501,165
6.00% due 2/26/01 500,000 499,035
MCI Communications Corp
6.125% due 4/15/12 1,125,000 1,120,815
Merrill Lynch & Co. Inc.
6.00% due 2/12/03 395,000 393,467
Norfolk Southern Corp.
7.35% due 5/15/07 1,000,000 1,072,850
Occidental Petroleum Corp
6.40% due 4/01/03 1,070,000 1,067,849
Pacificorp
6.375% due 5/15/08 435,000 437,534
Petroleum Geographical Services
6.625% due 3/30/08 735,000 736,323
Philadelphia Electric Company
7.125% due 9/01/023 70,000 381,711
6.625% due 3/01/03 715,000 726,040
Raytheon Co.
5.95% due 3/15/01 240,000 239,107
6.30% due 3/15/05 360,000 361,602
Sears Roebuck Acceptance Corp.
6.00% due 3/20/03 965,000 955,784
Sony Corp.
6.125% due 3/04/03 1,070,000 1,072,493
Suntrust Banks Inc.
6.00% due 1/15/28 975,000 959,567
Union Pacific Resource Group Inc.
6.50% due 5/15/05 1,475,000 1,463,805
------------
26,022,278
------------
MORTGAGE OBLIGATIONS -- 10.2%
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.3%
- --------------------------------------------------------------------------------
Asset Securitization Corp.
Series 95
7.384% due 8/13/29 $2,500,000 $ 2,674,609
Asset Securitization Corp.
Series 97
6.85% due 2/14/41 600,000 630,732
Country Wide Mortgage Backed Securities
7.50% due 9/25/14 855,535 858,204
Federal Home Loan Mortgage Corp.
6.00% due 1/01/99 1,000,000 975,625
GMAC Commercial Mortgage
6.83% due 12/15/03 2,142,752 2,185,942
J. P. Morgan Co. Inc.
6.373% due 1/15/30 750,171 758,361
Lehman Brothers First Union
6.479% due 3/18/04 942,198 951,517
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 1,354,552 1,397,803
Morgan Stanley Capital Investment Inc.
6.44% due 11/15/02 1,105,000 1,121,763
Nomura Asset Securitization Corp.
8.15% due 3/04/20 2,000,000 2,178,120
Residential Asset Securitization Trust
7.00% due 2/25/08 910,881 915,718
Structured Asset Securities Corp.
6.79% due 6/12/04 1,872,008 1,928,636
------------
16,577,030
------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 2.4%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
8.50% due 6/01/01 $ 13,121 $ 13,308
9.50% due 2/01/01 6,846 7,028
Federal National Mortgage Association
6.50% due 12/01/99 3,000,000 3,018,750
7.50% due 10/01/25 238,292 244,473
7.50% due 11/01/25 2,930,523 3,006,541
9.00% due 11/01/01 10,145 10,349
------------
6,300,449
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 1.5%
- --------------------------------------------------------------------------------
7.25% due 10/16/22 4,049,782 4,081,411
------------
Total Mortgage Obligations 26,958,890
------------
YANKEE BONDS -- 1.5%
- --------------------------------------------------------------------------------
Embotelladora Andina SA
7.00% due 10/01/07 810,000 773,064
Interamerica Development Bank
6.95% due 8/01/26 2,000,000 2,255,480
Ontario Province, Canada
7.00% due 8/04/05 1,045,000 1,106,394
------------
4,134,938
------------
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS -- 12.9%
- --------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS -- 5.3%
- --------------------------------------------------------------------------------
6.250% due 8/15/23 5,000,000 5,353,100
6.625% due 2/15/27 6,750,000 7,622,235
6.375% due 8/15/27 1,000,000 1,098,120
------------
14,073,455
------------
UNITED STATES TREASURY NOTES -- 6.9%
- --------------------------------------------------------------------------------
6.00% due 6/30/99 8,825,000 8,867,713
5.875% due 11/15/99 170,000 170,770
6.625% due 6/30/01 5,300,000 5,454,866
6.625% due 4/30/02 2,500,000 2,591,800
6.50% due 10/15/06 1,250,000 1,327,338
------------
18,412,487
------------
UNITED STATES AGENCY OBLIGATIONS -- 0.7%
- --------------------------------------------------------------------------------
Tennessee Valley Authority
5.88% due 4/01/36 $1,750,000 $ 1,819,423
------------
Total United States Government & Agency
Obligations 34,305,365
------------
Total Fixed Income (Identified Cost
$99,883,630) 102,465,303
------------
SHORT-TERM OBLIGATIONS -- 1.1%
- --------------------------------------------------------------------------------
FCC National Bank
5.68% due 6/03/99 2,000,220
State Street Bank Repurchase
Agreement 2.00% due 7/01/98,
proceeds at maturity $910,051
(collateralized by $895,000
U.S. Treasury Notes
5.875% due 1/31/99
valued at $919,613) 910,000
United States Treasury Bills
4.97% due 9/10/98 19,808
5.02% due 9/10/98 9,903
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost $2,938,467) 2,939,931
------------
TOTAL INVESTMENTS
(Identified Cost $251,439,852) 99.4% 263,805,307
OTHER ASSETS
LESS LIABILITIES 0.6% 1,559,911
----- ------------
NET ASSETS 100.0% $265,365,218
===== ============
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Futures contracts which were open at June 30, 1998 are as follows:
AGGREGATE
NUMBER FACE
OF VALUE OF EXPIRATION UNREALIZED
CONTRACTS CONTRACTS CONTRACTS DATE GAIN/LOSS
- --------------------------------------------------------------------------------
U. S. Treasury
5-year September
Bond (Sell) 26 $2,600,000 1998 $7,071
*Non-income producing
See notes to financial statements
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $251,439,852) $263,805,307
Cash 753
Receivable for investments sold 10,399,414
Dividends and interest receivable 1,688,735
Receivable for daily variation on future contracts 3,656
- --------------------------------------------------------------------------------
Total assets 275,897,865
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 10,408,498
Payable to affiliates--Investment advisory fees (Note 2) 86,275
Accrued expenses and other liabilities 37,874
- --------------------------------------------------------------------------------
Total liabilities 10,532,647
- --------------------------------------------------------------------------------
Net Assets $265,365,218
- -------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $265,365,218
- -------------------------------------------------------------------------------
BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $3,223,770
Dividends 1,315,662
- --------------------------------------------------------------------------------
Total investment income $ 4,539,432
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 518,258
Administrative fees (Note 3) 64,783
Expense fees (Note 6) 129,454
- --------------------------------------------------------------------------------
Total expenses 712,495
- --------------------------------------------------------------------------------
Net investment income 3,826,937
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions and
futures contracts 33,838,770
Net change in unrealized appreciation (depreciation)
of investments and futures contracts (17,716,140)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
futures contracts 16,122,630
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,949,567
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
<TABLE>
BALANCED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(Unaudited) 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 3,826,937 $ 7,239,807
Net realized gain from investment transactions
and futures contracts 33,838,770 34,083,761
Net change in unrealized appreciation (depreciation)
of investments and futures contracts (17,716,140) 6,996,049
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 19,949,567 48,319,617
- ----------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 6,587,046 7,417,240
Value of withdrawals (12,365,731) (52,068,589)
- ----------------------------------------------------------------------------------------
Net decrease in net assets
from capital transactions (5,778,685) (44,651,349)
- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 14,170,882 3,668,268
- ----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 251,194,336 247,526,068
- ----------------------------------------------------------------------------------------
End of period $265,365,218 $251,194,336
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
<CAPTION>
SIX MONTHS MAY 1, 1994
ENDED (COMMENCEMENT
JUNE 30, YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
1998 ------------------------------------ DECEMBER 31,
(Unaudited) 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $265,365 $251,194 $247,526 $251,519 $228,948
Ratio of expenses to
average net assets 0.55%* 0.55% 0.55% 0.53% 0.51%*
Ratio of net investment
income to average net
assets 2.95%* 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover 102% 134% 241% 210% 105%
- -------------------------------------------------------------------------------------------
*Annualized
See notes to financial statements
</TABLE>
<PAGE>
Balanced Portfolio
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Balanced Portfolio (the "Portfolio"), a
separate series of The Premium Portfolios (the "Portfolio Trust"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Adviser of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Administrator. Citibank is a wholly-owned
subsidiary of Citicorp. Citicorp recently announced its intention to merge with
The Travelers Group. Completion of the merger is subject to the satisfaction of
certain conditions.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations maturing in sixty
days or less are valued at amortized cost, which approximates market value.
Securities, if any, for which there are no such valuations or quotations are
valued at fair value as determined in good faith by or under guidelines
established by the Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for federal income tax purposes. Gain and loss from principal
paydowns are recorded as interest income. Dividend income is recorded on the
ex-dividend date.
C. U.S. Federal Taxes The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
D. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreement's
underlying investments to ensure the existence of a proper level of collateral.
F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
G. Futures Contracts The Portfolios may engage in futures transactions. The
Portfolios may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. The underlying value of a futures contract is incorporated
within unrealized appreciation/depreciation in the Portfolio of Investments
under the caption "Futures Contracts". Buying futures contracts tends to
increase the Portfolio's exposure to the underlying instrument. Selling futures
contracts tends to either decrease the Portfolio's exposure to the underlying
instrument, or to hedge other Portfolio investments.
Upon entering into a futures contract, the Portfolio is required to deposit
with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin".
Subsequent payments ("variation margin") are made or received by the Portfolio
each day, depending on the daily fluctuation of the value of the contract. The
daily changes in contract value are recorded as unrealized gains or losses and
the Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the settlement price established by the board of
trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities.
H. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. INVESTMENT ADVISORY FEES The investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $518,258
for the six months ended June 30, 1998. The investment advisory fees are
computed at the annual rate of 0.40% of the Portfolio's average daily net
assets.
3. ADMINISTRATIVE FEES Under the terms of an Administrative Services Agreement,
the administrative fees paid to the Administrator, as compensation for overall
administrative services and general office facilities, is computed at an annual
rate of 0.05% of the Portfolio's average daily net assets. The Administrative
fees amounted to $64,783 for the six months ended June 30, 1998. Citibank acts
as Sub-Administrator and performs such duties and receives such compensation
from SFG as from time to time is agreed to by SFG and Citibank. The Portfolio
pays no compensation directly to any officer who is affiliated with the
Administrator, all of whom receive remuneration for their services to the
Portfolio from the Administrator or its affiliates. Certain of the officers and
a Trustee of the Portfolio are officers or directors of the Administrator or its
affiliates.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $261,815,831 and $262,795,847,
respectively, for the six months ended June 30, 1998. Purchases and sales of
U.S. Government securities aggregated to $18,400,344 and $20,547,220,
respectively.
5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 1998, as
computed on a federal income tax basis, are as follows:
Aggregate cost $251,439,852
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 17,095,152
Gross unrealized depreciation (4,729,697)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 12,365,455
- --------------------------------------------------------------------------------
6. EXPENSE FEES SFG has entered into an expense agreement with the Portfolio.
SFG has agreed to pay all of the ordinary operating expenses (excluding
interest, taxes, brokerage commissions litigation costs or other extraordinary
costs or expenses) of the Portfolio, other than fees paid under the Advisory
Agreement and Administrative Services Agreement. The Agreement may be terminated
by either party upon not less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis,
accrued daily and paid monthly; provided, however, that such fee shall not
exceed the amount such that immediately after any such payment the aggregate
ordinary expenses of the Portfolio less expenses waived by the Administrator
would, on an annual basis, exceed an agreed upon rate, currently 0.55% of
average daily net assets.
7. LINE OF CREDIT The Portfolio, along with the other CitiFunds, entered into an
ongoing agreement with a bank which allows the Funds collectively to borrow up
to $60 million for temporary or emergency purposes. Interest on the borrowings,
if any, is charged to the specific fund executing the borrowing at the base rate
of the bank. The line of credit requires a quarterly payment of a commitment fee
based on the average daily unused portion of the line of credit. For the six
months ended June 30, 1998, the commitment fee allocated to the Portfolio was
$473. Since the line of credit was established, there have been no borrowings.
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
INVESTMENT ADVISER
(of Balanced Portfolio)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is
authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
For more information contact your Service Agent or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(C)1998 Citicorp [LOGO] Printed on recycled paper CFS/BAL/698
