Semi-Annual Report o June 30, 1999
CITIFUNDS [logo]
Balanced Portfolio
[Picture omitted]
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 4
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Portfolio Highlights 5
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Fund Performance 6
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CITIFUNDS BALANCED PORTFOLIO
Statement of Assets and Liabilities 7
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Statement of Operations 8
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Statement of Changes in Net Assets 9
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Financial Highlights 10
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Notes to Financial Statements 12
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BALANCED PORTFOLIO
Portfolio of Investments 15
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Statement of Assets and Liabilities 19
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Statement of Operations 19
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Statement of Changes in Net Assets 20
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Financial Highlights 20
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Notes to Financial Statements 21
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1999 through June
30, 1999 for the CitiFundsSM 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. Please note that
effective May 17, the equity portion of the CitiFunds Balanced Portfolio is now
being managed by Frances A. Root.
The past six months have been a study in contrasts for investor sentiment
and the financial markets. When the period began, investors were primarily
concerned that economic weakness overseas might constrain growth in the United
States. As a result, they favored stocks with predictable earnings growth and
bonds. When the period ended, investors were mainly worried that the economy
might be growing too fast, potentially awakening long-dormant inflationary
pressures. In this environment, they avoided bonds and favored stocks that are
sensitive to changes in the economic cycle.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
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Philip W. Coolidge
President
July 23, 1999
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PORTFOLIO ENVIRONMENT AND OUTLOOK
THE FIRST SIX MONTHS OF 1999 SAW A CONTINUATION OF THE STRONG ECONOMIC
CONDITIONS THAT HAVE PREVAILED IN THE UNITED STATES FOR MORE THAN SEVEN YEARS.
Lower short-term interest rates adopted by central banks throughout the world in
the fall of 1998 appear to have helped U.S. and overseas economies withstand
further adverse effects from the global credit and currency crisis, which began
in Asia in 1997 and spread to Russia and parts of Latin America in 1998. In the
U.S., consumer spending remained high, unemployment was low and inflationary
pressures continued to be virtually absent.
Stocks and bonds provided disparate performance both among and within their
individual markets in this stronger-than-expected economic environment. Abroad
look at the reporting period shows that stocks generally advanced while bonds
declined. However a closer look reveals dramatic differences in each markets'
performance during the first and second quarters of 1999.
DURING THE FIRST HALF OF THE REPORTING PERIOD, THE U.S. STOCK MARKET'S
ADVANCE WAS REMARKABLY NARROW, LED BY A RELATIVELY SMALL NUMBER OF LARGE-CAP
GROWTH AND TECHNOLOGY COMPANIES. Large-cap value stocks and virtually all
sectors of the small-cap market with the exception of Internet stocks produced
lackluster results. U.S. Treasury securities, which had rallied strongly last
summer when the stock market and other bond market sectors declined sharply,
gave back some of their gains. Other types of bonds did better, however, as
investors shifted assets back into sectors they had previously avoided,
including corporate bonds, mortgage-backed securities, asset-backed securities
and foreign bonds.
During the second half of the reporting period, investor sentiment shifted
dramatically, causing a change in leadership within the financial markets. When
evidence emerged that economies worldwide were stronger than many analysts
expected, investors turned to stocks that tend to do well in an economic
expansion. As a result, stock prices that had languished for several years began
to show signs of renewed strength. Cyclical companies, such as energy and
commodities producers, saw their stock prices rise. Shares of value companies,
which have lower valuations in comparison with the overall market, began to
outperform growth companies for the first time in several years. Small-cap
stocks began a long-awaited recovery.
In this environment, CitiFunds Balanced Portfolio provided highly
competitive returns. The reporting period began with 60% of the portfolio's
assets allocated to stocks and 40% of assets allocated to bonds. This allocation
was designed to take advantage of the stock market's relative strength. In May,
however, the Portfolio's stock positions were reduced to 55% and its
fixed-income holdings were increased to 45%. Most of the assets that were
shifted away from stocks were reinvested in cash instruments. This change was
made after the stock market had posted strong gains and management found
opportunities to earn profits in stocks that it no longer considered
undervalued.
Within the stock portion of the Portfolio, there were good results from
investments in a number of industries and economic sectors. For example, top
contributors to performance included Williams Companies, a diversified con-
2
<PAGE>
glomerate with a strong telecommunications business; Raytheon, a major defense
contractor; and Marsh & McLennan, the parent company of insurance, investment
management and consulting businesses. Of course past performance is no guarantee
of future results and the Portfolio's holdings may change at any time. In
addition, the Portfolio received good results after exposure to capital goods
was increased and raw materials and energy companies were added as global
economies gained strength. The Portfolio also increased its holdings of
financial services companies that management believes will benefit from
globalization, demographic changes and the growth of the Internet.
In the Portfolio's fixed-income segment, the Portfolio's sector allocations
and average duration (i.e., a measure of bonds' sensitivity to changes in
interest rates) were actively managed. As U.S. Treasury securities were punished
and higher yielding areas of the bond market were rewarded over the first six
months of the year, the Portfolio's exposure to mortgage-backed and asset-backed
securities was increased. Conversely, the investment team substantially reduced
the Portfolio's holdings of underperforming U.S. Treasury securities.
Allocations to corporate bonds remained relatively unchanged. At the same time,
the Portfolio's average duration was gradually reduced to the neutral range,
enabling management to respond more quickly to higher yielding investment
opportunities as they became available.
LOOKING FORWARD, THE PORTFOLIO'S FIXED INCOME INVESTMENT TEAM EXPECTS
ECONOMIC STRENGTH TO CONTINUE IN THE U.S. AND AROUND THE WORLD. While this may
lead to modest interest-rate hikes by the Federal Reserve Board, financial
markets appear to have already anticipated such a move. Accordingly, while
management believes that bond yields are not likely to rise much further, they
are monitoring the situation carefully. IN THE STOCK MARKET, THE BROAD-BASED
MARKET TRENDS THAT BEGAN IN APRIL ARE EXPECTED TO CONTINUE. Historically, when
cyclical companies begin to outperform growth companies, the change tends to
persist for more than just a few weeks or months. In addition, the management
team of the Portfolio's stocks has recently seen evidence that value-oriented
stocks, such as the ones in which the stock portion of the portfolio invests,
may be poised for improved performance.
3
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FUND FACTS
FUND OBJECTIVE
To provide 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.
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
October 19, 1990 Distributed semi-annually, if any
NET ASSETS AS OF 6/30/99 BENCHMARKS
Class A shares $234.4 million o -Standard and Poor's Barra Value
Class B shares $2.3 million Index*
o -Lehman Brothers Aggregate
Bond Index**
o -Lipper Balanced Funds Average
* The Standard and Poor's Barra Value Index is an index of U.S. common stocks
and is used as a gauge of general U.S. stock market performance. The S&P
Barra Value Index represents the value of stocks in the S&P 500.
** The Lehman Brothers Aggregate Bond Index is a broad measure of the
performance of taxable bonds in the U.S. market, with maturities of at
least one year.
4
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PORTFOLIO HIGHLIGHTS
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TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 1999 (Unaudited)
COMPANY, INDUSTRY % OF NET ASSETS
Enron Corp., Consumer Services 2.1%
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Chase Manhattan Corp., Finance 2.0%
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General Electric Co., Basic Industries 1.9%
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American Home Products Corp., Consumer Durables 1.9%
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Mobil Corp., Producer Manufacturing 1.9%
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Pitney Bowes Inc., Finance 1.8%
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AT&T Corp., Consumer Services 1.8%
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SBC Communications Inc., Consumer Services 1.7%
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William Companies Inc., Consumer Services 1.7%
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Emerson Electric Co., Basic Industries 1.7%
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PORTFOLIO DIVERSIFICATION AS OF June 30, 1999 (Unaudited)
[picture omitted]
5
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ALL PERIODS ENDED JUNE 30, 1999 SIX ONE FIVE 10/19/90
(Unaudited) MONTHS** YEAR YEARS* INCEPTION*
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CitiFunds Balanced Portfolio
(Class A) 8.31% 8.29% 13.72% 13.05%
without sales charge
Lipper Balanced Funds Average 5.57% 9.98% 16.15% 14.00%+
S&P Barra Value Index 13.96% 16.49% 23.63% 20.26%+
Lehman Brothers Aggregate Bond Index (1.37)% 3.13% 7.82% 8.40%+
CitiFunds Balanced Portfolio (Class A)
with a maximum sales charge of 5.00% 2.89% 2.87% 12.56% 12.38%
CitiFunds Balanced Portfolio (Class B)
without deferred sales charge -- -- -- 7.71%#**
Lipper Balanced Funds Average -- -- -- 5.57%++**
S&P Barra Value Index -- -- -- 13.96%++**
Lehman Aggregate Bond Index -- -- -- (1.37)%++**
CitiFunds Balanced Portfolio (Class B)
with a maximum deferred
sales charge of 5.00% -- -- -- 2.33%#**
* Average Annual Total Return
** Not Annualized
+ From 10/31/90
++ From 12/31/98 # Commencement of Operations 1/4/99
Income Dividends per share Class A $0.194 Capital Gain Distributions
Class A $0.023
Income Dividends per share Class B $0.173 Capital Gain Distributions
Class B $0.023
GROWTH OF $10,000 INVESTMENT
A $10,000 investment in the Fund made on 10/31/90 would have grown to $27,617
with sales charge (as of 6/30/99). The graph shows how the Fund compares to its
benchmarks for the same period.
[picture omitted]
CitiFunds Balanced Portfolio
Lipper Balanced Funds Average
S&P Barra Value Index (unmanaged)
Lehman Brothers Aggregate
Bond Index (unmanaged)
The graph includes the initial sales charge on the Fund (no comparable charge
exists for other indices) and assumes all dividends and distributions are
reinvested at Net Asset Value.
Note: 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. and reflect certain voluntary fee waivers
which may be terminated at anytime. If the waivers were not in place, the Fund's
return would have been lower. The maximum sales charge of 5.00% went into effect
on January 4, 1999. Investors may not invest directly in an index.
6
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
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ASSETS:
Investment in Balanced Portfolio, at value (Note 1A) $237,185,543
Receivable for shares of beneficial interest sold 137,637
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Total assets 237,323,180
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LIABILITIES:
Payable for shares of beneficial interest repurchased 546,968
Accrued expenses and other liabilities 127,341
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Total liabilities 674,309
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NET ASSETS $236,648,871
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NET ASSETS CONSIST OF:
Paid-in capital $208,097,177
Unrealized appreciation 9,625,906
Accumulated net realized gain 18,261,591
Undistributed net investment income 664,197
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Total $236,648,871
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COMPUTATION OF CLASS A SHARES:
Net Asset Value per share ($234,351,609/15,420,484 shares outstanding) $15.20
Offering Price per share ($15.20/0.95) $16.00*
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CLASS B SHARES:
Net Asset Value per share and offering price
($2,297,262/151,403 shares outstanding) $15.17**
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* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
7
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
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INVESTMENT INCOME (Note 1B):
Interest Income from Balanced Portfolio $ 3,062,790
Dividend Income from Balanced Portfolio 1,261,904
Allocated Expenses from Balanced Portfolio (649,296)
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$ 3,675,398
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EXPENSES:
Administrative fees (Note 2) 294,324
Service fees Class A (Note 3) 292,948
Service fees Class B (Note 3) 5,505
Custody and fund accounting fees 32,666
Shareholder reports 14,394
Trustee fees 7,424
Audit fees 6,725
Legal fees 6,000
Transfer agent fees 1,000
Other 1,924
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Total expenses 662,910
Less aggregate amount waived by Administrator
(Note 2) (107,206)
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Net expenses 555,704
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Net investment income 3,119,694
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NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
BALANCED PORTFOLIO:
Net realized gain 19,505,042
Unrealized depreciation on investments (3,723,797)
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Net realized and unrealized gain
from Balanced Portfolio 15,781,245
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 18,900,939
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See notes to financial statements
8
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30,1999 YEAR ENDED
(UNAUDITED) DECEMBER 31,1998
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INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 3,119,694 $ 6,041,370
Net realized gain 19,505,042 26,888,409
Unrealized depreciation on investments (3,723,797) (15,478,163)
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Net increase in net assets
resulting from operations 18,900,939 17,451,616
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income Class A (3,046,010) (5,439,336)
Net investment income Class B (17,618) --
Net realized gain Class A (348,563) (34,018,101)
Net realized gain Class B (3,267) --
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Decrease in net assets
from distributions to shareholders (3,415,458) (39,457,437)
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TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 5,168,930 23,637,486
Net asset value of shares issued to
shareholders from reinvestment
of distributions 3,392,662 39,433,879
Cost of shares repurchased (25,989,230) (31,497,141)
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Total Class A (17,427,638) 31,574,224
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CLASS B*
Net proceeds from sale of shares 2,303,045 --
Net asset value of shares
issued to shareholders from reinvestment
of distributions 18,624 --
Cost of shares repurchased (89,507) --
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Total Class B 2,232,162 --
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Net increase (decrease)
in net assets from transactions in
shares of beneficial interest (15,195,476) 31,574,224
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NET INCREASE IN NET ASSETS 290,005 9,568,403
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NET ASSETS:
Beginning of period 236,358,866 226,790,463
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End of period (including undistributed
net investment income of $664,197 and
$608,131, respectively) $236,648,871 $236,358,866
================================================================================
*January 4, 1999 (Commencement of Operations) to June 30, 1999.
See notes to financial statements
9
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED DECEMBER 31,
-------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994+
<S> <C> <C> <C> <C> <C> <C>
=========================================================================================
Net Asset Value,
beginning of period $14.24 $15.77 $15.61 $15.71 $13.52 $14.24
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Income From Operations:
Net investment income 0.201 0.420 0.421 0.497 0.486 0.399
Net realized and
unrealized gain (loss) 0.976 0.795 2.726 0.680 2.540 (0.695)
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Total from operations 1.177 1.215 3.147 1.177 3.026 (0.296)
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Less Distributions From:
Net investment income (0.194) (0.380) (0.421) (0.497) (0.495) (0.394)
Net realized gain (0.023) (2.365) (2.566) (0.780) (0.341) (0.030)
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Total distributions (0.217) (2.745) (2.987) (1.277) (0.836) (0.424)
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Net Asset Value,
end of period $15.20 $14.24 $15.77 $15.61 $15.71 $13.52
=========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $234,352 $236,359 $226,790 $230,382 $246,002 $227,309
Ratio of expenses to
average net assets (A) 1.02%* 1.02% 1.02% 1.02% 1.02% 1.02%
Ratio of net investment
income to average net
assets 2.66%* 2.61% 2.44% 3.04% 3.21% 2.82%
Portfolio turnover (B) -- -- -- -- -- 29%
Total return (C) 8.31%** 7.83% 20.85% 7.59% 22.66% (2.06)%
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 $0.194 $0.390 $0.387 $0.464 $0.463 $0.378
RATIOS:
Expenses to average
net assets 1.11%(A)* 1.22%(A) 1.22%(A) 1.22%(A) 1.17%(A) 1.17%(A)
Net investment income to
average net assets 2.57%* 2.41% 2.24% 2.84% 3.06% 2.67%
=========================================================================================
</TABLE>
* Annualized
** Not Annualized
(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.
(C) Total return does not include the maximum sales charge of 5.00% effective
January 4, 1999.
+ On May 1, 1994 the Fund began investing all of its investable assets in
Balanced Portfolio.
See notes to financial statements
10
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
------------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1999
(Unaudited)
================================================================================
Net Asset Value, beginning of period $14.28
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Income From Operations:
Net investment income 0.133
Net realized and unrealized gain (loss) 0.953
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Total from operations 1.086
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Less Distributions From:
Net investment income (0.173)
Net realized gain (0.023)
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Total distributions (0.196)
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Net Asset Value, end of period $15.17
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $2,297
Ratio of expenses to average net assets (A) 1.77%*
Ratio of net investment income to average net assets 1.91%*
Total return 7.71%**
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 $0.126
RATIOS:
Expenses to average net assets 1.86%*
Net investment income to average net assets 1.82%*
================================================================================
* Annualized
** Not Annualized
(A) Includes the Fund's share of Balanced Portfolio allocated expenses for the
periods indicated.
See notes to financial statements
11
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Balanced Portfolio (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. The value of such investment reflects
the Fund's proportionate interest (89.2% at June 30, 1999) in the net assets of
the Portfolio. CFBDS, Inc. ("CFBDS") 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, which in turn, is a wholly-owned subsidiary
of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc. which was completed on October 8, 1998.
The Fund offers Class A shares and Class B shares. The Fund commenced its
public offering of Class B shares on January 4, 1999. Class A shares have a
front-end, or initial, sales charge effective January 4, 1999. This sales charge
may be reduced or eliminated in certain circumstances. Class B shares have no
front-end sales charge, pay a higher ongoing distribution fee than Class A
shares and are subject to a deferred sales charge if sold within five years of
purchase. Class B shares automatically convert into Class A shares after eight
years. Expenses of the Fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
Rule 12b-1 service and distribution fees applicable to such class), and votes as
a class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the net assets of the Fund, if the Fund were
liquidated. Class A shares have lower expenses than Class B shares.
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 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 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 invest-
12
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
ment 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.
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 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 $294,324, of which $107,206 was voluntarily waived for the six
months ended June 30, 1999. Citibank acts as Sub-Administrator and performs
certain duties and receives compensation from CFBDS from time to time as 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.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the 1940
Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual
rate not to exceed 0.25% of the average daily net assets represented by Class A
shares of the Fund. The Service fees for Class A shares amounted to $292,948 for
the six months ended June 30, 1999. Under the Class B Service Plan, the Fund may
pay a combined monthly distribution and service fee at an annual
13
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
rate not to exceed 1.00% of the average daily net assets represented by Class B
shares of the Fund. The Service fees for Class B shares amounted to $5,505 for
the period ended June 30, 1999. These fees may be used to make payments to the
Distributor for distribution services and to others as compensation for the sale
of shares of the applicable class of the Fund, for advertising, marketing or
other promotional activity, and for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. The Fund may also make payments
to the Distributor and others for providing personal service of the maintenance
of shareholder accounts.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the six months ended June 30, 1999 aggregated $1,917,621 and
$19,849,455, 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, 1999 DECEMBER 31,
(Unaudited) 1998
================================================================================
CLASS A
Shares sold 352,093 1,473,554
Shares issued to shareholders from
reinvestment of distribution 229,011 2,695,888
Shares repurchased (1,756,119) (1,950,608)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (1,175,015) 2,218,834
================================================================================
CLASS B*
Shares sold 156,178 --
Shares issued to shareholders from
reinvestment of distribution 1,253 --
Shares repurchased (6,028) --
- --------------------------------------------------------------------------------
Class B net increase 151,403 --
================================================================================
*January 4, 1999 (Commencement of Operations) to June 30, 1999.
6. SUBSEQUENT EVENT At a Special Meeting on July 30, 1999, the shareholders of
the Fund approved certain proposals to allow the assets of the Fund to be
invested in one or more investment companies. Additionally, the shareholders
approved a Management Agreement with Citibank, to provide administrative
services. These new agreements simplify and terminate the Fund's existing
Administration Service Agreement. Effective August 1, 1999 the Management fees
may not exceed, on an annual basis, an amount equal to 0.70% of the average
daily net assets of the Fund.
14
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 61.3%
- --------------------------------------------------------------------------------
BASIC INDUSTRIES -- 15.6%
- --------------------------------------------------------------------------------
Abbott Labs 72,000 $ 3,276,000
Alcoa Inc. 56,000 3,465,000
Bristol Meyers Squibb Co. 59,000 4,155,813
Dow Chemical Co. 14,000 1,776,250
E.I. du Pont
De Nemours & Co. 50,000 3,415,625
Emerson Electric Co. 70,000 4,401,250
General Electric Co. 45,000 5,085,000
Honeywell Inc. 34,500 3,997,688
International Paper Co. 64,000 3,232,000
Pharmacia & Upjohn Inc. 63,000 3,579,188
Union Pacific Corp. 60,000 3,498,750
Unumprovident Corp. 28,000 1,533,000
----------
41,415,564
----------
CONSUMER DURABLES -- 6.1%
- --------------------------------------------------------------------------------
American Home
Products Corp. 86,000 4,945,000
Dana Corp. 60,000 2,763,750
Delphi Automotive Systems Corp. 12,580 233,516
Ford Motor Co. 35,000 1,975,312
General Motors Corp. 18,000 1,188,000
Goodyear Tire and Rubber 30,000 1,764,375
Masco Corp. 115,000 3,320,625
----------
16,190,578
----------
CONSUMER NON-DURABLES -- 3.2%
- --------------------------------------------------------------------------------
Avon Products Inc. 59,000 3,274,500
H.J. Heinz Co. 35,000 1,754,375
Pepsico Inc. 95,000 3,675,312
----------
8,704,187
----------
CONSUMER SERVICES-- 13.3%
- --------------------------------------------------------------------------------
AT&T Corp. 85,000 4,744,062
Bell Atlantic Corp. 48,200 3,151,075
Duke Energy Co. 75,000 4,078,125
Enron Corp. 69,000 5,640,750
McGraw HillCompanies Inc. 43,000 2,319,312
SBC Communications Inc. 78,000 4,524,000
Sprint Corp. 60,000 3,168,750
Unicom Corp. 85,000 3,277,812
Williams Companies Inc. 105,000 4,469,063
----------
35,372,949
----------
FINANCE -- 14.2%
- --------------------------------------------------------------------------------
Bank One Corp. 70,000 4,169,375
BankAmerica Corp. 42,600 3,123,112
Chase Manhattan Corp. 60,000 5,197,500
Chubb Corp. 45,000 3,127,500
Cigna Corp. 42,500 3,782,500
Hartford Financial Services Group 59,000 3,440,438
J. P. Morgan Co. Inc. 22,000 3,091,000
Marsh & McLennan Companies Inc. 48,000 3,624,000
Mellon Bank Corp. 90,000 3,273,750
Pitney Bowes Inc. 75,000 4,818,750
----------
37,647,925
----------
PRODUCER MANUFACTURING -- 6.2%
- --------------------------------------------------------------------------------
BP Amoco PLC 29,000 3,146,500
Chevron Corp. 33,000 3,141,188
Exxon Corp. 19,200 1,480,800
Halliburton Co. 46,100 2,086,025
Mobil Corp. 49,700 4,920,300
Royal Dutch Petroleum Co. 27,000 1,626,750
----------
16,401,563
----------
MISCELLANEOUS-- 2.7%
- --------------------------------------------------------------------------------
Raytheon Co. 43,570 3,066,239
Xerox Corp. 70,000 4,134,375
----------
7,200,614
----------
Total Common Stock
(Identified Cost $151,263,115) 162,933,380
===========
15
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 1999
(Unaudited)
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
FIXED INCOME -- 44.5%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- 11.2%
- --------------------------------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $1,040,000 $1,044,170
Aircraft Financial Trust
8.00% due 5/15/24 1,500,000 1,426,406
Asset Securitization Corp.
Series 95 7.10% due 8/13/29 508,489 513,253
7.384% due 8/13/29 2,500,000 2,562,200
Asset Securitization Corp.
Series 97 6.85% due 2/14/41 600,000 587,982
Commercial Mortgage Acceptance Corp.
5.80% due 5/15/06 520,075 507,177
Contimortgage Home Equity Loan
6.13% due 3/15/13 1,100,000 1,095,523
Criimi Mae Commercial Mortgage
7.00% due 11/2/11 600,000 460,219
Ford Credit Auto Owner Trust
6.16% due 8/15/03 2,000,000 1,982,500
GMAC Commercial Mortgage
6.42% due 8/15/08 1,100,000 1,063,227
6.83% due 12/15/03 1,634,232 1,650,362
Green Tree Financial Corp.
6.71% due 8/15/29 1,050,000 1,018,342
8.05% due 10/15/27 3,500,000 3,557,960
IMC Home Equity Loan
6.16% due 5/20/14 2,000,000 1,999,340
J. P. Morgan Co. Inc.
6.373% due 1/15/30 666,859 661,130
Lehman Brothers/First Union
6.479% due 3/18/04 798,300 796,120
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 1,297,406 1,312,689
Morgan Stanley Capital Investment Inc.
6.44% due 11/15/02 1,105,000 1,101,862
Nomura Asset Securitization Corp.
8.15% due 3/04/20 2,000,000 2,105,680
PNC Mortgage Securitization Corp.
6.392% due 9/25/13 1,610 1,537
Peco Energy Transportation Trust
6.05% due 3/01/09 1,100,000 1,053,591
Residential Funding Mortgage
Securitization Corp.
7.00% due 2/25/08 432,799 433,609
Sears Credit Account Master Trust II
5.25% due 10/16/08 1,110,000 1,060,050
Structured Asset Securities Corp.
6.79% due 6/12/04 1,827,180 1,843,971
-----------
29,838,900
-----------
DOMESTIC CORPORATIONS -- 10.7%
- --------------------------------------------------------------------------------
Ahold Financial USA Inc.
6.875% due 5/01/29 1,130,000 1,045,126
American Financial Group Inc.
7.125% due 4/15/09 1,045,000 972,341
Associates Corp.
6.95% due 11/01/18 1,365,000 1,315,178
BB&T Corp.
6.375% due 6/30/05 1,470,000 1,432,633
Bank One Corp.
5.625% due 2/17/04 1,050,000 1,004,346
Century Telecommunications
Enterprises Inc.
6.30% due 1/15/08 1,000,000 952,180
Conoco Inc.
5.90% due 4/15/04 1,150,000 1,122,147
Conseco Inc.
6.40% due 6/15/01 850,000 832,720
Dayton Hudson Corp.
6.65% due 8/01/28 1,120,000 1,021,787
Equitable Life Assurance
6.95% due 12/01/05 1,050,000 1,047,984
Ford Motor Co.
6.625% due 10/01/28 1,285,000 1,156,731
General Motors Acceptance Corp.
6.15% due 4/05/07 1,040,000 990,319
Household Financial Corp.
6.50% due 11/15/08 1,050,000 1,001,186
Imperial TOB Overseas
7.125% due 4/01/09 1,070,000 1,020,769
Knight Ridder Inc.
6.875% due 3/15/29 770,000 712,554
7.15% due 11/01/27 170,000 163,333
Lehman Brothers Holdings Inc.
6.40% due 8/30/00 1,030,000 1,031,082
7.00% due 5/15/03 830,000 823,527
MCI Communications Corp.
6.50% due 4/15/10 1,425,000 1,365,720
16
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999
(Unaudited)
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
Mattel Inc.
6.00% due 7/15/03 $ 765,000 $ 745,734
Merita Bank Plc
6.50% due 4/01/09 1,030,000 975,863
Morgan Stanley Group Inc.
5.625% due 1/20/04 1,150,000 1,108,416
National Rural Utilities
6.20% due 2/01/08 1,260,000 1,214,905
Nordstrom Inc.
5.625% due 1/15/09 880,000 799,515
Petroleum Geographical
Services
6.625% due 3/30/08 735,000 691,878
Popular Inc.
6.20% due 4/30/01 725,000 718,272
6.875% due 6/15/01 690,000 689,427
Provident Companies Inc.
7.00% due 7/15/18 525,000 502,231
Raytheon Co.
6.30% due 3/15/05 1,000,000 981,450
TPSA Financial BV
7.75% due 12/10/08 1,075,000 1,043,677
----------
28,483,031
----------
MORTGAGE OBLIGATIONS -- 10.7%
- --------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 7.1%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
6.00% due 12/31/99 1,000,000 940,470
6.25% due 6/15/24 860,000 837,194
7.00% due 12/31/99 2,000,000 2,001,250
8.50% due 6/01/01 6,685 6,767
9.50% due 2/01/01 3,382 3,426
Federal National
Mortgage Association
5.50% due 12/31/99 5,000,000 4,559,375
6.50% due 12/01/99 2,000,000 1,970,620
6.50% due 12/01/99 1,840,000 1,775,011
6.50% due 05/01/29 2,467,231 2,380,088
7.349% due 8/17/21 600,000 611,208
7.50% due 10/01/25 120,157 121,358
7.50% due 11/01/25 1,687,981 1,704,861
7.50% due 7/01/29 2,000,000 2,022,500
9.00% due 11/01/01 5,922 6,074
----------
18,940,202
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.6%
- --------------------------------------------------------------------------------
6.50% due 12/15/99 $ 1,100,000 $ 1,057,892
6.50% due 12/31/99 2,000,000 1,918,750
7.00% due 12/31/99 4,300,000 4,242,208
7.00% due 2/15/24 1,088,443 1,077,221
7.25% due 10/16/22 1,259,676 1,265,975
----------
9,562,046
----------
TOTAL MORTGAGE OBLIGATIONS 28,502,248
----------
YANKEE BONDS -- 1.1%
- --------------------------------------------------------------------------------
Corporacion Andina de Fomento
7.75% due 3/01/04 1,050,000 1,022,788
Korea Development Bank
7.128% due 4/22/04 1,030,000 1,005,646
Manitoba Province, Canada
5.50% due 10/01/08 1,050,000 968,394
---------
2,996,828
---------
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS -- 10.8%
- --------------------------------------------------------------------------------
United States Treasury Bonds -- 4.8%
- --------------------------------------------------------------------------------
8.125% due 8/15/19 5,300,000 6,401,393
3.625% due 4/15/28 996,510 940,296
5.25% due 11/15/28 500,000 443,205
3.875% due 4/15/29 5,053,750 4,987,420
----------
12,772,314
----------
United States Treasury Notes -- 3.9%
- --------------------------------------------------------------------------------
5.75% due 11/30/02 550,000 551,116
4.25% due 11/15/03 2,000,000 1,888,440
5.875% due 2/15/04 2,125,000 2,138,621
6.875% due 5/15/06 560,000 589,574
6.625% due 5/15/07 1,300,000 1,353,833
3.875% due 1/15/09 1,420,000 1,403,130
5.50% due 5/15/09 2,390,000 2,334,719
----------
10,259,433
----------
17
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999
(Unaudited)
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------
United States Agency Obligations-- 2.1%
- --------------------------------------------------------------------------------
Federal National
Mortgage Association
5.49% due 8/18/00 $ 3,800,000 $ 3,794,072
Tennessee Valley Authority
5.88% due 4/01/36 1,750,000 1,715,945
-----------
5,510,017
-----------
Total United States
Government & Agency Obligations 28,541,764
-----------
Total Fixed Income
(Identified Cost $121,209,260) 118,362,771
-----------
SHORT-TERM OBLIGATIONS
AT AMORTIZED COST -- 0.1%
United States Treasury Bills
4.59% due 9/23/99
Total Short-Term Obligations
(Identified Cost $158,286) 158,298
-----------
Total Investments
(Identified Cost $272,630,661) 105.9% $ 281,454,449
Other Assets,Less Liabilities (5.9) (15,634,241)
---- -----------
NET ASSETS 100.0% $ 265,820,208
===== =============
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Futures contracts which were open at June 30, 1999 are as follows:
Aggregate
Number of Face Value Expiration Unrealized
Contracts Of Contracts Date Gain/loss
- --------------------------------------------------------------------------------
U. S. T-notes
2Yr 9/99
Sept. (Long) 20 $2,000,000 1999 $4,537
U. S. T-notes
10Yr 9/99
Sept. (Short) (65) (6,500,000) 1999 ($77,675)
U. S. T-bond 9/99
Sept. (Short) (25) (2,500,000) 1999 ($9,563)
--------
($82,701)
========
See notes to financial statements
18
<PAGE>
Balanced Portfolio
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $272,630,661) $281,454,449
Cash 7,746
Receivable for investments sold 9,790,437
Dividends and interest receivable 1,462,302
- --------------------------------------------------------------------------------
Total assets 292,714,934
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 26,623,445
Payable to affiliates-Investment advisory fees (Note 2) 42,599
Accrued expenses and other liabilities 159,463
Payable for daily variation on futures contracts 69,219
- --------------------------------------------------------------------------------
Total liabilities 26,894,726
- --------------------------------------------------------------------------------
NET ASSETS $265,820,208
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $265,820,208
================================================================================
BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
INVESTMENT INCOME:
Interest $3,439,858
Dividends 1,417,791
- --------------------------------------------------------------------------------
$4,857,649
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 530,594
Custody and fund accounting fees 93,677
Administrative fees (Note 3) 66,324
Legal fees 15,000
Audit fees 13,750
Trustee fees 3,954
Other 6,282
- --------------------------------------------------------------------------------
Total expenses 729,581
- --------------------------------------------------------------------------------
Net investment income 4,128,068
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 21,520,534
Net realized gain from futures contracts 387,719
Unrealized depreciation of investments and
futures contracts (4,199,546)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and futures contracts 17,708,707
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,836,775
================================================================================
See notes to financial statements
19
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(Unaudited) 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 4,128,068 $ 7,943,643
Net realized gain from investment
transactions and futures contracts 21,908,253 29,726,471
Unrealized depreciation of investments
and futures contracts (4,199,546) (17,148,033)
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 21,836,775 20,522,081
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 5,082,500 17,030,280
Value of withdrawals (26,222,931) (23,622,833)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions (21,140,431) (6,592,553)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 696,344 13,929,528
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 265,123,864 251,194,336
- --------------------------------------------------------------------------------
End of period $ 265,820,208 $ 265,123,864
================================================================================
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS MAY 1, 1994
ENDED (COMMENCEMENT
JUNE 30, YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
1999 ------------------------------------------ DECEMBER 31,
(Unaudited) 1998 1997 1996 1995 1994
======================================================================================================
Ratios/Supplemental Data:
Net Assets, end of period
<S> <C> <C> <C> <C> <C> <C>
(000's omitted) $265,820 $265,124 $251,194 $247,526 $251,519 $228,948
Ratio of expenses to
average net assets 0.55%* 0.55% 0.55% 0.55% 0.53% 0.51%*
Ratio of net
investment income
to average net assets 3.11%* 3.08% 2.90% 3.50% 3.69% 3.53%*
Portfolio turnover 88% 133% 134% 241% 210% 105%
======================================================================================================
* Annualized
</TABLE>
See notes to financial statements
20
<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, which in turn, is a wholly-owned subsidiary of Citigroup
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc. which was completed on October 8, 1998.
The 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
21
<PAGE>
BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 Portfolio may engage in futures transactions. The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective to 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
22
<PAGE>
BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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 advisory fee paid to Citibank, amounted to
$530,594 for the six months ended June 30, 1999. Advisory fees are computed at
the annual rate of 0.40% of the Portfolio's average daily net assets less the
aggregate amount (if any) payable by the Portfolio Trust pursuant to the
Sub-Adviser Agreement with the Subadviser. Effective May, 1999 Citibank
delegated the daily advisory of the Equity portion of the Portfolio to SSBC Fund
Management, Inc., an affiliate of Citibank (the "Subadviser"). The Portfolio
pays the Subadviser the following fees, which are accrued daily and payable
monthly and are at the annual rates equal to a percentage of the aggregate
assets of the Portfolio allocated to the Subadviser: 0.65% on the first $10
million, 0.50% on the next $10 million, 0.40% on the next $10 million, 0.30% on
remaining assets.
The advisory fees paid to the Subadviser amounted to $65,904 for the period
ended June 30, 1999.
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 $66,324 for the six months ended June 30, 1999. Citibank acts
as Sub-Administrator and performs certain duties and receives compensation from
SFG from time to time as agreed to by SFG and Citibank. The Portfolio pays no
compensation directly to any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
23
<PAGE>
BALANCED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $262,542,663 and $238,574,503
respectively, for the six months ended June 30, 1999. Purchases and sales of
U.S. Government securities aggregated to $92,411,000 and $97,697,440,
respectively.
5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized
appreciation (depreciation) in value of the investment securities owned at June
30, 1999, as computed on a federal income tax basis, are as follows:
Aggregate cost $272,630,661
================================================================================
Gross unrealized appreciation $ 15,600,693
Gross unrealized depreciation (6,776,905)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 8,823,788
================================================================================
6. LINE OF CREDIT The Portfolio, along with the other Portfolios in the
CitiFunds Family, has entered into an ongoing agreement with a bank which allows
the Funds collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific fund
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the six months ended June 30, 1999,
the commitment fee allocated to the Portfolio was $337. Since the line of credit
was established, there have been no borrowings.
24
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., Chairman
Philip W. Coolidge*, President
Elliott J. Berv
Mark T. Finn
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF INVESTMENT ADVISER
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
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California 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
(C)1999 Citicorp
CitiFunds are made available by CFBDS, Inc. as distributor.
R Printed on recycled paper
CFS/BAL/699
