<PAGE>
Semi-Annual Report o June 30, 1998
[logo]
Intermediate
Income Portfolio
[graphic omitted]
BONDS
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Letter to Our Shareholders 1
..............................................................................
Portfolio Environment and Outlook 2
..............................................................................
Fund Facts 4
..............................................................................
Portfolio Highlights 4
..............................................................................
Fund Performance 5
..............................................................................
Portfolio of Investments 6
..............................................................................
Statement of Assets and Liabilities 9
..............................................................................
Statement of Operations 10
..............................................................................
Statement of Changes in Net Assets 11
..............................................................................
Financial Highlights 12
..............................................................................
Notes to Financial Statements 13
..............................................................................
<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) Intermediate Income 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 quite positive for the U.S. bond market.
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. We are pleased to report that CitiFunds
Intermediate Income Portfolio participated in this market sector's gains.
Among the highlights of the reporting period, your fund has changed its name
to CitiFunds(SM) Intermediate Income Portfolio. 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 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. In
addition, fears that economic growth was too strong were tempered by
widespread expectations that the financial crisis in Asia would soon constrain
growth. The potentially moderating effects of the Asian crisis apparently
convinced the Federal Reserve Board not to raise short-term interest rates in
an attempt to forestall an acceleration of inflation.
This combination of economic influences created excellent conditions for
the U.S. bond market. In addition, the bond market benefitted from the federal
government's progress toward a balanced budget. Many analysts expect a budget
surplus in fiscal year 1998, which could further reduce the government's need
to finance its operations by issuing U.S. Treasury securities. Even as the
supply of U.S. Treasury securities is shrinking, investor demand is growing.
This is especially true of overseas investors, who have shown a preference for
the quality and relative stability of U.S. dollar-based investments in the
aftermath of Asia's problems.
The U.S. bond market responded to these positive influences by narrowing
the differences in yields between short-term fixed-income securities and
long-term bonds. 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, intermediate-
and long-term U.S. Treasury and agency securities generally provided total
returns slightly higher than their coupons.
THE PORTFOLIO SOUGHT TO MAINTAIN HIGH YIELDS COMMENSURATE WITH ITS RISK
PROFILE in this environment. Accordingly, we maintained a relatively long
average duration, which is a measure of the portfolio's sensitivity to changes
in interest rates. By holding the average duration near the long end of its
range, we were able to maintain 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.
This strategy led us to invest a portion of the portfolio in asset-backed
securities, which are secured by high-quality debt obligations such as
automobile loans, home equity loans and commercial mortgages. We invested
about 24% in mortgage-backed securities from U.S. government agencies such as
the Government National Mortgage Association, known as Ginnie Mae. Another 23%
or so of the portfolio was composed of investment-grade corporate bonds, where
we found attractive opportunities in the debt of domestically-oriented
companies such as banks, finance companies and utilities. The remainder of the
portfolio was invested in U.S. Treasury securities, where we emphasized bonds
with long maturities.
The portfolio's average credit quality remained high over the past six
months. As of June 30, 1998, approximately 80% of the portfolio's investments
were rated AAA by Standard & Poor's or Aaa by Moody's, the highest ratings
available.
We remain optimistic about the bond market's prospects over the second
half of 1998, primarily because slower economic growth and its benign
implications for inflation are generally good for the bond market. In our
view, U.S. consumers' propensity to spend freely and drive economic growth
higher should be more than offset by the effects on trade flows of
recessionary conditions in Asia. At the same time, we believe that consumer
consumption will decline from its rapid pace early in the year. Finally,
competition from foreign manufacturers and domestic productivity improvements
should prevent U.S. companies from raising prices, helping to keep the
inflation rate low.
Although we may see an increase in market volatility over the short-term
as the tug-of-war between U.S. consumer consumption and Asian influences
becomes resolved, we ultimately expect that a slow-down in economic growth
will allow long-term yields to move modestly lower. If our outlook is correct,
we expect these conditions to support prices in the various bond market
sectors in which CitiFunds Intermediate Income Portfolio invests. Of course,
we will continue to monitor the economy and bond market, making every effort
to generate a high level of current income and to preserve the value of our
shareholders' investment.
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate a high level of current income and preserve the
value of its shareholders' investments
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid monthly
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
June 25, 1993 Distributed semi-annually, if
any
NET ASSETS AS OF 6/30/98 BENCHMARKS
$46 million o Lipper Intermediate Investment
Grade Funds Average
o Lehman Aggregate Bond Index
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF JUNE 30, 1998 (Unaudited)
U.S. Treasury Issues 35%
Mortgage Obligations 24%
Corporate Bonds 23%
Asset-Backed Securities 10%
*Short-Term 8%
*Includes cash and net other assets.
FUND PERFORMANCE
Total Returns
SINCE
ALL PERIODS ENDING JUNE 30, 1998 SIX ONE FIVE 6/25/93
(Unaudited) MONTHS** YEAR YEAR* (INCEPTION)*
- --------------------------------------------------------------------------------
CitiFunds Intermediate Income
Portfolio 4.03% 10.02% 5.85% 5.90%
Lipper Intermediate Investment
Grade Funds Average 3.61% 9.42% 6.12% 5.59%(+)
Lehman Aggregate Bond Index 3.93% 10.54% 6.88% 6.87%(+)
* Average Annual Total Return
** Not Annualized
(+) From 6/30/93
30-Day SEC Yield 5.09%
Income Dividends Per Share $0.267
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund
made on inception date would have
grown to $13,329 (as of 6/30/98).
The graph shows how this compares
to its benchmark over the same
period.
LIPPER LEHMAN
CITIFUNDS INTERMEDIATE AGGREGATE
INTERMEDIATE INV. GRADE BOND
DATE INCOME FUND AVG. INDEX
---- ------------ ------------ ----------
6/25/93 $10,000
6/30/93 $10,030 $10,000 $10,000
7/31/93 $10,073 $10,042 $10,057
8/31/93 $10,325 $10,228 $10,233
9/30/93 $10,406 $10,268 $10,261
10/31/93 $10,416 $10,301 $10,299
11/30/93 $10,246 $10,209 $10,211
12/31/93 $10,299 $10,257 $10,266
1/31/94 $10,445 $10,387 $10,405
2/28/94 $10,215 $10,202 $10,224
3/31/94 $ 9,968 $ 9,980 $ 9,971
4/30/94 $ 9,868 $ 9,890 $ 9,891
5/31/94 $ 9,841 $ 9,875 $ 9,890
6/30/94 $ 9,810 $ 9,856 $ 9,869
7/31/94 $ 9,976 $10,004 $10,065
8/31/94 $10,003 $10,024 $10,077
9/30/94 $ 9,836 $ 9,911 $ 9,929
10/31/94 $ 9,798 $ 9,896 $ 9,920
11/30/94 $ 9,760 $ 9,867 $ 9,898
12/31/94 $ 9,838 $ 9,914 $ 9,967
1/31/95 $10,021 $10,072 $10,164
2/28/95 $10,249 $10,281 $10,406
3/31/95 $10,322 $10,345 $10,469
4/30/95 $10,439 $10,478 $10,616
5/31/95 $10,930 $10,848 $11,027
6/30/95 $10,992 $10,916 $11,107
7/31/95 $10,941 $10,887 $11,083
8/31/95 $11,039 $11,009 $11,217
9/30/95 $11,159 $11,106 $11,326
10/31/95 $11,199 $11,244 $11,473
11/30/95 $11,310 $11,401 $11,645
12/31/95 $11,456 $11,546 $11,808
1/31/96 $11,509 $11,622 $11,886
2/29/96 $11,279 $11,423 $11,679
3/31/96 $11,190 $11,345 $11,597
4/30/96 $11,113 $11,276 $11,532
5/31/96 $11,083 $11,256 $11,509
6/30/96 $11,245 $11,384 $11,664
7/31/96 $11,263 $11,410 $11,695
8/31/96 $11,230 $11,401 $11,675
9/30/96 $11,443 $11,587 $11,878
10/31/96 $11,693 $11,821 $12,142
11/30/96 $11,895 $12,016 $12,350
12/31/96 $11,769 $11,910 $12,235
1/31/97 $11,824 $11,805 $12,273
2/28/97 $11,853 $11,829 $12,303
3/31/97 $11,708 $11,705 $12,167
4/30/97 $11,889 $11,857 $12,349
5/31/97 $11,983 $11,959 $12,467
6/30/97 $12,115 $12,092 $12,615
7/31/97 $12,417 $12,403 $12,956
8/31/97 $12,296 $12,294 $12,846
9/30/97 $12,472 $12,465 $13,034
10/31/97 $12,688 $12,522 $13,223
11/30/97 $12,682 $12,557 $13,284
12/31/97 $12,813 $12,670 $13,418
1/31/98 $13,019 $12,833 $13,590
2/28/98 $12,986 $12,815 $13,580
3/31/98 $13,034 $12,861 $13,626
4/30/98 $13,078 $12,916 $13,697
5/31/98 $13,217 $13,031 $13,827
6/30/98 $13,329 $13,125 $13,944
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. Total Returns reflect certain voluntary
fee waivers which may be terminated. If the waivers were not in place, total
returns would be lower.
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1998
(Unaudited)
PRINCIPAL
AMOUNT
(000'S
ISSUER OMITTED) VALUE
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FIXED INCOME -- 95.3%
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ASSET BACKED SECURITIES -- 9.9%
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Aames Mortgage Trust 6.59% due 6/15/24 $ 375 $ 379,271
Contimortgage Home Equity Loan
6.13% due 3/15/13 500 500,300
6.28% due 1/15/13 300 300,093
6.57% due 3/15/23 350 351,260
6.87% due 3/15/24 375 382,751
Green Tree Financial Corp. 8.05%
due 10/15/27 1,500 1,639,680
IMC Home Equity Loan 6.16% due 5/20/14 1,000 1,000,626
-----------
4,553,981
-----------
DOMESTIC CORPORATIONS -- 23.4%
- -------------------------------------------------------------------------------
Allied Signal Inc. 6.20% due 2/01/08 505 510,035
Associates Corp. N.A. 5.96% due 5/15/37 750 777,435
Atlantic City Electric Co.
7.01% due 8/23/02 560 581,442
BB&T Corp. 6.375% due 6/30/05 485 484,379
Century Tel Enterprises Inc.
6.30% due 1/15/08 400 394,364
Computer Associates International Inc.
6.375% due 4/15/05 510 506,838
Conseco Inc. 6.40% due 6/15/01 450 449,712
Dayton Hudson Corp. 5.95% due 6/15/00 225 224,921
Donaldson Lufkin & Jenrette
6.50% due 6/01/08 245 244,980
Equitable Life Assurance
6.95% due 12/01/05 510 529,446
Ford Motor Co. 6.625% due 2/15/28 400 400,332
GTE Corp. 6.36% due 4/15/06 410 408,061
Household Finance Corp. 6.40% due 6/17/08 200 199,928
Lehman Brothers Holdings Inc.
6.00% due 2/26/01 170 169,672
6.15% due 3/15/00 170 170,396
MCI Communications Corp. 6.125% due 4/15/12 480 478,214
Merrill Lynch & Co. Inc. 6.00% due 2/12/03 145 144,437
Norfolk Southern Corp. 7.35% due 5/15/07 400 429,140
Occidental Petroleum Corp. 6.40% due 4/01/03 400 399,196
Ontario Province 7.00% due 8/04/05 450 476,438
Pacificorp Secured Mortgage Bank 6.375% due 5/15/08 160 160,932
Petroleum Geological Services 6.625% due 3/30/08 265 265,477
Philadelphia Electric Co.
6.625% due 3/01/03 270 274,169
7.125% due 9/01/02 125 128,956
Raytheon Co.
5.95% due 3/15/01 90 89,665
6.30% due 3/15/05 140 140,623
Sears Roebuck Acceptance Corp. 6.00% due 3/20/03 330 326,849
Sony Corp. 6.125% due 3/04/03 470 471,095
Suntrust Banks Inc. 6.00% due 1/15/28 350 344,460
Union Pacific Resources Group Inc. 6.50% due 5/15/05 575 570,636
-----------
10,752,228
-----------
MORTGAGE OBLIGATIONS -- 24.0%
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.9%
- -------------------------------------------------------------------------------
Asset Securitization Corp., Series 95,
7.384% due 8/13/29 1,000 1,069,844
Asset Securitization Corp., Series 97,
6.85% due 2/14/41 225 236,525
JP Morgan Commercial Mortgage Financial Corp.
6.37% due 1/15/30 258 260,995
Merrill Lynch Mortgage Co. 6.95% due 6/18/29 475 490,457
Morgan Stanley Capital Investment Inc.
6.44% due 11/15/02 350 355,310
Nomura Asset Securitization Corp.
8.15% due 4/04/27 1,000 1,089,060
Residential Asset Securitization Trust
7.00% due 2/25/08 336 337,765
Structured Asset Securities Corp.
6.79% due 10/15/34 709 730,850
-----------
4,570,806
-----------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 9.2%
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
8.50% due 4/01/01 16 16,128
9.00% due 1/01/99 500 493,125
Federal National Mortgage Association
6.50% due 12/01/99 2,000 2,012,500
7.50% due 10/01/25 1,411 1,447,628
7.50% due 4/01/26 46 46,940
7.50% due 5/01/26 189 193,659
8.00% due 6/01/02 12 11,896
-----------
4,221,876
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 4.9%
- -------------------------------------------------------------------------------
7.25% due 10/16/22 2,181 2,197,683
8.00% due 12/15/07 53 54,489
-----------
2,252,172
-----------
Total Mortgage Obligations 11,044,854
-----------
YANKEE BONDS -- 3.1%
- -------------------------------------------------------------------------------
Embotelladora Andina SA 7.00% due 10/01/07 310 295,864
Inter-American Development Bank
6.95% due 8/01/26 1,000 1,127,740
-----------
1,423,604
-----------
UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 34.9%
- -------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS -- 11.0%
- -------------------------------------------------------------------------------
6.25% due 8/15/23 2,500 2,676,550
6.625% due 2/15/27 1,150 1,298,603
6.125% due 11/15/27 1,000 1,071,560
-----------
5,046,713
-----------
UNITED STATES TREASURY NOTES -- 22.2%
- -------------------------------------------------------------------------------
6.00% due 6/30/99 5,000 5,024,200
5.625% due 4/30/00 580 581,085
6.625% due 6/30/01 2,665 2,742,871
6.50% due 5/31/02 1,000 1,033,280
5.75% due 11/30/02 495 499,099
5.875% due 2/15/04 320 325,900
-----------
10,206,435
-----------
UNITED STATES AGENCY OBLIGATIONS -- 1.7%
- -------------------------------------------------------------------------------
Tennessee Valley Authority 5.88% due 4/01/36 750 779,753
-----------
TOTAL UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS 16,032,901
-----------
TOTAL FIXED INCOME (Identified Cost $42,930,739) 43,807,568
-----------
PREFERRED STOCK -- 0.5%
- -------------------------------------------------------------------------------
Comed Fing I (Identified Cost $255,000) 10 254,375
-----------
SHORT-TERM OBLIGATIONS -- 8.5%
- -------------------------------------------------------------------------------
FCC National Bank 5.68% due 6/03/99 999,381
Salomon Brothers Repurchase Agreement
5.75% due 7/01/98 proceeds at maturity $2,844,454
(collateralized by $2,145,000 U.S. Treasury Bonds
valued at $2,874,944
8.75% due 5/15/17) 2,844,000
United States Treasury Bills
4.97% due 9/10/98 19,804
5.02% due 9/10/98 9,901
5.23% due 7/23/98 19,936
-----------
TOTAL SHORT-TERM OBLIGATIONS (Identified Cost $3,893,022) 3,893,022
-----------
TOTAL INVESTMENTS (Identified Cost $47,078,761) 104.3% 47,954,965
OTHER ASSETS, LESS LIABILITIES (4.3)
----- -----------
NET ASSETS 100.0% $45,987,570
----- -----------
See notes to financial statements
FUTURES CONTRACTS
- -------------------------------------------------------------------------------
Futures contracts which were open at June 30, 1998 are as follows:
DESCRIPTION/ NUMBER OF EXPIRATION UNREALIZED
POSITION CONTRACTS DATE GAIN/(LOSS)
- -------------------------------------------------------------------------------
U.S. Treasury Note 20 September 1998 $ 5,709
---------
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
- -----------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)(Identified Cost,
$47,078,761) $47,954,965
Cash 53
Receivable for investment sold 3,506,914
Receivable for shares of beneficial interest sold 255,167
Interest receivable 383,306
Variation margin receivable 2,812
- -----------------------------------------------------------------------
Total assets 52,103,217
- -----------------------------------------------------------------------
LIABILITIES:
Payable for investment purchased 6,013,066
Payable for shares of beneficial interest
repurchased 33,079
Payable for affiliates - Management fees (Note 2) 11,850
Accrued expenses 57,652
- -----------------------------------------------------------------------
Total liabilities 6,115,647
- -----------------------------------------------------------------------
NET ASSETS for 4,674,209 shares of beneficial
interest outstanding $45,987,570
- -----------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $47,432,222
Accumulated net realized loss from investment
transactions and futures contracts (2,347,384)
Unrealized appreciation of investments and
futures contracts 881,913
Undistributed net investment income 20,819
- -----------------------------------------------------------------------
Total $45,987,570
- -----------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE OF BENEFICIAL INTEREST $9.84
- -----------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------
INVESTMENT INCOME (Note 1B): $1,220,447
EXPENSES:
Management fees (Note 2) $ 133,566
Distribution fees (Note 3) 47,702
Custody and Fund Accounting fees 22,033
Audit fees 18,100
Shareholder reports 9,430
Transfer agent fees 7,500
Trustees fees 6,584
Legal fees 4,000
Miscellaneous 3,581
- ---------------------------------------------------------------------
Total expenses 252,496
Less aggregate amounts waived by the Manager
(Note 2) (79,390)
Less fees paid indirectly (Note 1I) (1,390)
- ---------------------------------------------------------------------
Net expenses 171,716
- ---------------------------------------------------------------------
Net investment income 1,048,731
- ---------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from investment transactions 609,126
Net realized gain on futures transactions 30,984
Net change in unrealized appreciation
(depreciation) of investments and future
contracts (139,385)
- ---------------------------------------------------------------------
Net realized and unrealized gain on
investments and future contracts 500,725
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,549,456
- ---------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(Unaudited) 1997
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $1,048,731 $2,329,594
Net realized gain from investments and
futures transactions 640,110 272,468
Net change in unrealized appreciation
(depreciation) of investments and
future contracts (139,385) 649,983
- ------------------------------------------------------------------
Net increase in net assets resulting
from operations 1,549,456 3,252,045
- ------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,054,867) (2,338,323)
- ------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST (Note 5):
Net proceeds from sale of shares 12,648,317 595,327
Net asset value of shares issued to
shareholders from reinvestment of
distributions 1,054,206 2,335,328
Cost of shares repurchased (4,911,105) (11,061,426)
- ------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest 8,791,418 (8,130,771)
- ------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 9,286,007 (7,217,049)
- ------------------------------------------------------------------
NET ASSETS:
Beginning of period 36,701,563 43,918,612
- ------------------------------------------------------------------
End of period (including undistributed
net investment income of $20,819 and
$26,955, respectively) $45,987,570 $36,701,563
- -----------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED JUNE 25, 1993
JUNE 30, YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
1998 ------------------------------------------ OPERATIONS) TO
(Unaudited) 1997 1996 1995 1994 DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of
period $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88 $ 10.00
- ---------------------------------------------------------------------------------------------
Income From
Operations:
Net investment
income 0.271 0.575 0.54 0.57 0.521 0.261
Net realized and
unrealized gain
(loss) on
investments 0.116 0.239 (0.29) 0.86 (0.959) 0.037
- ---------------------------------------------------------------------------------------------
Total from
operations 0.387 0.814 0.25 1.43 (0.438) 0.298
- ---------------------------------------------------------------------------------------------
Less
Distributions From:
Net investment
income (0.267) (0.574) (0.54) (0.57) (0.516) (0.261)
In excess of net
investment
income -- -- -- -- -- (0.006)
Net realized gain
on investments -- -- -- -- (0.016) (0.151)
- ---------------------------------------------------------------------------------------------
Total distributions (0.267) (0.574) (0.54) (0.57) (0.532) (0.418)
- ---------------------------------------------------------------------------------------------
Net Asset Value,
end of period $ 9.84 $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (000's
omitted) $ 45,988 $ 36,702 $ 43,919 $ 49,618 $ 47,582 $ 61,183
Ratio of expenses
to average net
assets(A) 0.91%* 0.92% 0.90% 0.90% 0.90% 0.90%*
Ratio of expenses
to average net
assets after
fees paid
indirectly(A) 0.90%* 0.90% 0.90% 0.90% 0.90% 0.90%*
Ratio of net
investment
income to
average net
assets 5.50%* 5.92% 5.72% 5.97% 5.52% 4.95%*
Portfolio
turnover 78% 146% 495% 396% 291% 103%
Total return 4.03%** 8.87% 2.73% 16.45% (4.48)% 2.99%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their
fees for the periods indicated the net investment income per share and the ratios would have
been as follows:
Net investment
income per share $0.250 $0.522 $0.50 $0.52 $0.475 $0.236
RATIOS:
Expenses to
average net
assets 1.32%* 1.47% 1.39% 1.42% 1.39% 1.38%*
Net investment
income to
average net
assets 5.08%* 5.37% 5.23% 5.45% 5.03% 4.47%*
- ---------------------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been
adjusted to reflect a change in reporting requirements. The new reporting guidelines require
the Fund to increase its expense ratio by the effect of any expense offset arrangements with
its service providers. The expense ratios for each of the periods ended on or before
December 31, 1995 have not been adjusted to reflect this change.
</TABLE>
See notes to financial statements
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Intermediate Income Portfolio
(formerly Landmark Intermediate Income Fund) (the 'Fund') is a separate
diversified series of CitiFunds Fixed Income Trust (the 'Trust') which is
organized as 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 Investment Manager of the Fund is Citibank, N.A.
('Citibank'). CFBDS, Inc. ('CFBDS') (formerly Landmark Funds Broker-Dealer
Services, Inc.) acts as the Fund's Sub-Administrator and Distributor.
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 these estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. Investment Security Valuations Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service, which takes into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, and other market data, without
exclusive reliance upon quoted prices or exchange or over-the-counter prices,
since such valuations are believed to reflect more accurately the fair value
of the securities. Short-term obligations (maturing in 60 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 is determined on the basis 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 ordinary income.
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. At December 31, 1997, the Fund, for
federal income tax purposes, had a capital loss carryover of $2,977,002 of
which $1,901,428 will expire on December 31, 2002 and $1,075,574 which will
expire on December 31, 2004. Such capital loss carryover will reduce the
Fund's taxable income arising from future net realized gain on investment
transactions, if any, to the extent permitted by the Internal Revenue Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
income or excise tax.
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.
E. Distributions The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains.
F. Repurchase Agreements It is the policy of the Fund 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 custodial bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund 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.
G. Futures Contracts The Fund may engage in futures transactions. The Fund
may use futures contracts in order to protect the Fund from fluctuations in
interest rates without actually buying or selling debt securities, or to
manage the effective maturity or duration of fixed income securities in the
Fund's portfolio in an effort to reduce potential losses or enhance potential
gains. Buying futures contracts tends to increase the Fund's exposure to the
underlying instrument. Selling futures contracts tends to either decrease the
Fund's exposure to the underlying instrument, or to hedge other fund
investments.
Upon entering into a futures contract, the Fund 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 Fund 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
Fund recognizes a realized gain or loss when the contract is closed. Futures
contracts are valued at the settlement price established by the board of trade
or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation margin reflected in
the Statement of Assets and Liabilities.
H. Other Investment transactions are accounted for on the date the investments
are purchased or sold. Realized gains and losses are determined on the
identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
I. Fees Paid Indirectly The Fund's custodian bank calculates its fees based
on the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expense on the Statement of
Operations.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Fund's business affairs, and has a Management Agreement with the Fund.
Citibank also provides certain administrative services to the Fund. These
administrative services include providing general office facilities and
supervising the overall administration of the Fund. CFBDS acts as
Sub-Administrator and performs such duties and receives such compensation from
Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is
a wholly-owned subsidiary of Citicorp. Citcorp recently announced its
intentions to merge with The Travelers Group. Completion of the merger is
subject to the satisfaction of certain conditions.
The management fees paid to Citibank, are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.70% of the Funds'
average daily net assets. The management fee amounted to $133,566 of which
$79,390 was voluntarily waived for the six months ended June 30, 1998. The
Trust pays no compensation directly to any Trustee or any other officer who is
affiliated with the Sub-Administrator, all of whom receive remuneration for
their services to the Trust from the Sub-Administrator or its affiliates.
3. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, in which the Fund
pays fees for distribution, sales and marketing and shareholder services at an
annual rate not to exceed 0.25% of the Fund's average daily net assets. The
Distribution fees amounted to $47,702 for the six months ended June 30, 1998.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities,
other than short-term obligations, aggregated $37,238,256 and $29,787,308,
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 1,291,392 62,642
Shares issued to shareholders from
reinvestment of distributions 107,789 244,817
Shares repurchased (500,815) (1,162,555)
- -------------------------------------------------------------------------
Net increase (decrease) 898,366 (855,096)
- -------------------------------------------------------------------------
6. 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 $47,078,761
- -------------------------------------------------------------------------
Gross unrealized appreciation $ 902,104
Gross unrealized depreciation (25,900)
- -------------------------------------------------------------------------
Net unrealized appreciation $ 876,204
- -------------------------------------------------------------------------
7. LINE OF CREDIT The Fund, along with 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 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 Fund was $70.
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
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*Affiliated Person of Sub-Administrator and Distributor
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
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
Deloitte & Touche LLP
125 Summer 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/INI/698
<PAGE>
Semi-Annual Report o June 30, 1998
[LOGO]
Short-Term
U.S. Government
Income Portfolio
[Graphic Omitted]
BONDS
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 3
................................................................................
Fund Performance 4
................................................................................
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
Statement of Assets and Liabilities 5
................................................................................
Statement of Operations 6
................................................................................
Statement of Changes in Net Assets 7
................................................................................
Financial Highlights 8
................................................................................
Notes to Financial Statements 9
................................................................................
GOVERNMENT INCOME PORTFOLIO
Portfolio of Investments 13
................................................................................
Statement of Assets and Liabilities 14
................................................................................
Statement of Operations 14
................................................................................
Statement of Changes in Net Assets 15
................................................................................
Financial Highlights 15
................................................................................
Notes to Financial Statements 16
................................................................................
<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) Short-Term U.S. Government Income Portfolio. Inside,
the CitiFunds' investment adviser, 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 quite positive for the U.S. government
securities market. Moderate economic growth, low inflation, an unchanged
monetary policy and progress toward a balanced federal budget helped U.S.
Treasury and agency securities produce attractive total rates of return for the
six-month period. We are pleased to report that CitiFunds Short-Term U.S.
Government Income Portfolio participated in this market sector's gains.
Among the highlights of the reporting period, your fund has changed its name
to CitiFunds(SM) Short-Term U.S. Government Income Portfolio. 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. In
addition, fears that economic growth was too strong were tempered by widespread
expectations that the financial crisis in Asia would soon constrain growth. The
potentially moderating effects of the Asian crisis apparently convinced the
Federal Reserve Board not to raise short-term interest rates in an attempt to
forestall an acceleration of inflation.
This combination of economic influences produced excellent market conditions
for U.S. government securities. In addition, U.S. Treasury and agency securities
benefited from the federal government's progress toward a balanced budget. Many
analysts expect a budget surplus in the fiscal year 1998, which could further
reduce the government's need to finance its operations by issuing U.S. Treasury
securities. Even as the supply of U.S. Treasury securities is shrinking,
investor demand is growing. This is especially true of overseas investors, who
have shown a preference for the quality and relative stability of U.S.
dollar-based investments in the aftermath of Asia's problems.
The U.S. government securities market responded to these positive influences
by narrowing the differences in yields between short-term bills and long-term
notes and bonds. Short-term yields fell by 20 to 25 percentage points because of
dramatically reduced issuance. Yields on intermediate-term and long-term bonds
also declined, with the long-term yields falling more than intermediate-term
yields. As a result, by the end of the period, there were only minor differences
in yields between long-term and intermediate-term securities. In addition,
because bond prices rise when their yields decline, intermediate- and long-term
U.S. Treasury and agency securities generally provided total returns slightly
higher than their coupons, while short-term securities provided returns
consistent with their coupons.
The portfolio sought to maintain high yields commensurate with its risk
profile in this environment. Accordingly, we maintained a relatively long
average duration, which is a measure of the portfolio's sensitivity to changes
in interest rates. By holding the average duration near the long end of its
range, we were able to maintain higher, existing yields for as much time as
possible. We also allocated the portfolio's assets among the two primary sectors
of the U.S. government securities market in an attempt to maximize exposure to
securities providing the best relative values.
The strategy led us to invest nearly 65% of the portfolio in U.S. Treasury
securities as of June 30, 1998, which represents a modest increase over the
six-month period. The majority of those assets were invested in notes with
maturities of three to five years, enabling us to capture much of the yield
provided by longer-dated securities at a lower level of risk. The remainder of
the portfolio was invested in mortgage-backed securities from the Government
National Mortgage Association, a U.S. government agency known as Ginnie Mae.
Although these securities tend to provide higher nominal yields than U.S.
Treasury securities, they were not subject to the same supply-and-demand
influences that helped produce attractive total rates of return for U.S.
Treasury securities.
We remain optimistic regarding the U.S. government securities market's
prospects over the second half of 1998, primarily because slower economic growth
and it benign implications for inflation are generally good for the bond market.
In our view, U.S. consumers' propensity to spend freely and drive economic
growth higher should be more than offset by the effects on trade flows of
recessionary conditions in Asia. At the same time, we believe that consumer
consumption will decline from its rapid pace early in the year. Finally,
competition from foreign manufacturers and domestic productivity improvements
should prevent U.S. companies from raising prices, helping to keep the inflation
rate low.
Although we may see an increase in market volatility over the short-term as
the tug-of-war between U.S. consumer consumption and Asian influences becomes
resolved, we expect a slow-down in economic growth to allow long-term bond
yields to move modestly lower. If our outlook is correct, we expect these
conditions to support prices of U.S. Treasury and agency securities. Of course,
we will continue to monitor the economy and fixed-income markets, making every
effort to generate a high level of current income and preserve the value of our
shareholders investment.
FUND FACTS
FUND OBJECTIVE
To generate current income and preserve the value of its shareholders'
investment.
INVESTMENT ADVISER, DIVIDENDS
GOVERNMENT INCOME PORTFOLIO Paid monthly, if any
Citibank, N.A.
CAPITAL GAINS
COMMENCEMENT OF OPERATIONS Paid semi-annually, if any
September 8, 1986
BENCHMARKS
NET ASSETS AS OF 06/30/98 o Lipper Short U.S. Government
$23.8 million Funds Average
o Lehman 1-3 Year U.S. Government
Index
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ALL PERIODS ENDED JUNE 30, 1998 SIX ONE FIVE TEN
(Unaudited) MONTHS** YEAR YEARS* YEARS*
- --------------------------------------------------------------------------------
CitiFunds Short-Term U.S. Government
Income Portfolio 2.73% 6.23% 4.62% 6.75%
Lipper Short U.S. Government Funds Average 2.64% 5.94% 4.81% 6.43%
Lehman 1-3 Year U.S. Government Index 3.00% 6.78% 5.58% 7.21%
* Average Annual Total Return
** Not Annualized
30-Day SEC Yield 4.93%
Income Dividends Per Share $0.240
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made ten years ago would have grown to $19,220
(as of 6/30/98). The graph shows how this compares to its benchmarks over the
same period.
<PAGE>
Lipper Short
U.S. Government Lehman 1-3 Year
U.S. Government Income Funds U.S. Government
Date Income Average Index
---- --------------- --------------- ---------------
6/30/88 $10,000 $10,000 $10,000
7/31/88 $ 9,962 $10,002 $10,005
8/31/88 $ 9,945 $10,017 $10,029
9/30/88 $10,105 $10,146 $10,146
10/31/88 $10,222 $10,254 $10,248
11/30/88 $10,138 $10,212 $10,223
12/31/88 $10,144 $10,229 $10,245
1/31/89 $10,272 $10,319 $10,327
2/28/89 $10,175 $10,314 $10,327
3/31/89 $10,210 $10,354 $10,371
4/30/89 $10,387 $10,494 $10,540
5/31/89 $10,632 $10,651 $10,689
6/30/89 $10,905 $10,845 $10,888
7/31/89 $11,115 $10,999 $11,048
8/31/89 $10,906 $10,921 $10,983
9/30/89 $10,936 $10,975 $11,047
10/31/89 $11,244 $11,152 $11,219
11/30/89 $11,344 $11,245 $11,321
12/31/89 $11,361 $11,289 $11,364
1/31/90 $11,161 $11,272 $11,376
2/28/90 $11,173 $11,324 $11,436
3/31/90 $11,158 $11,358 $11,471
4/30/90 $10,977 $11,370 $11,498
5/31/90 $11,341 $11,540 $11,675
6/30/90 $11,535 $11,657 $11,797
7/31/90 $11,701 $11,794 $11,940
8/31/90 $11,531 $11,813 $11,983
9/30/90 $11,622 $11,900 $12,077
10/31/90 $11,778 $12,021 $12,211
11/30/90 $12,045 $12,154 $12,329
12/31/90 $12,259 $12,290 $12,474
1/31/91 $12,398 $12,402 $12,592
2/28/91 $12,469 $12,472 $12,673
3/31/91 $12,517 $12,541 $12,758
4/30/91 $12,642 $12,656 $12,880
5/31/91 $12,706 $12,728 $12,957
6/30/91 $12,653 $12,755 $13,005
7/31/91 $12,846 $12,879 $13,117
8/31/91 $13,150 $13,060 $13,296
9/30/91 $13,472 $13,212 $13,437
10/31/91 $13,598 $13,347 $13,582
11/30/91 $13,670 $13,474 $13,722
12/31/91 $13,950 $13,700 $13,930
1/31/92 $13,856 $13,619 $13,911
2/29/92 $13,921 $13,584 $13,953
3/31/92 $13,898 $13,505 $13,949
4/30/92 $13,979 $13,616 $14,076
5/31/92 $14,162 $13,759 $14,206
6/30/92 $14,309 $13,902 $14,349
7/31/92 $14,493 $14,068 $14,515
8/31/92 $14,589 $14,184 $14,632
9/30/92 $14,718 $14,300 $14,769
10/31/92 $14,579 $14,189 $14,685
11/30/92 $14,562 $14,166 $14,663
12/31/92 $14,725 $14,302 $14,800
1/31/93 $14,921 $14,482 $14,955
2/28/93 $15,068 $14,620 $15,074
3/31/93 $15,121 $14,666 $15,120
4/30/93 $15,214 $14,749 $15,212
5/31/93 $15,165 $14,731 $15,175
6/30/93 $15,333 $14,868 $15,289
7/31/93 $15,325 $14,908 $15,322
8/31/93 $15,550 $15,054 $15,449
9/30/93 $15,612 $15,096 $15,498
10/31/93 $15,646 $15,122 $15,533
11/30/93 $15,570 $15,078 $15,535
12/31/93 $15,620 $15,132 $15,597
1/31/94 $15,715 $15,235 $15,694
2/28/94 $15,541 $15,109 $15,599
3/31/94 $15,358 $14,953 $15,520
4/30/94 $15,243 $14,847 $15,461
5/31/94 $15,274 $14,820 $15,482
6/30/94 $15,272 $14,819 $15,521
7/31/94 $15,432 $14,939 $15,661
8/31/94 $15,463 $14,973 $15,712
9/30/94 $15,380 $14,921 $15,677
10/31/94 $15,395 $14,930 $15,712
11/30/94 $15,311 $14,870 $15,647
12/31/94 $15,352 $14,903 $15,677
1/31/95 $15,583 $15,088 $15,891
2/28/95 $15,797 $15,303 $16,107
3/31/95 $15,879 $15,383 $16,198
4/30/95 $16,045 $15,515 $16,342
5/31/95 $16,414 $15,821 $16,621
6/30/95 $16,496 $15,900 $16,711
7/31/95 $16,478 $15,919 $16,778
8/31/95 $16,596 $16,035 $16,877
9/30/95 $16,680 $16,127 $16,960
10/31/95 $16,815 $16,270 $17,100
11/30/95 $16,986 $16,426 $17,246
12/31/95 $17,115 $16,563 $17,377
1/31/96 $17,236 $16,682 $17,524
2/29/96 $17,093 $16,605 $17,456
3/31/96 $17,021 $16,585 $17,443
4/30/96 $16,984 $16,589 $17,459
5/31/96 $16,982 $16,608 $17,499
6/30/96 $17,088 $16,720 $17,626
7/31/96 $17,143 $16,775 $17,695
8/31/96 $17,181 $16,820 $17,760
9/30/96 $17,328 $16,965 $17,922
10/31/96 $17,530 $17,143 $18,124
11/30/96 $17,659 $17,277 $18,258
12/31/96 $17,632 $17,272 $18,262
1/31/97 $17,726 $17,353 $18,350
2/28/97 $17,765 $17,398 $18,394
3/31/97 $17,711 $17,366 $18,379
4/30/97 $17,862 $17,493 $18,530
5/31/97 $17,977 $17,596 $18,660
6/30/97 $18,092 $17,690 $18,788
7/31/97 $18,303 $17,874 $18,993
8/31/97 $18,305 $17,881 $19,012
9/30/97 $18,421 $18,004 $19,157
10/31/97 $18,577 $18,130 $19,298
11/30/97 $18,599 $18,170 $19,347
12/31/97 $18,709 $18,259 $19,476
1/31/98 $18,906 $18,414 $19,663
2/28/98 $18,908 $18,427 $19,681
3/31/98 $18,968 $18,490 $19,758
4/30/98 $19,045 $18,562 $19,852
5/31/98 $19,143 $18,657 $19,958
6/30/98 $19,220 $18,739 $20,061
The graph assumes all dividends and distributions from the Fund 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 SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investment in Government Income Portfolio, at value (Note 1A) $23,803,642
Receivable for shares of beneficial interest sold 111,455
Receivable from the Administrator 37,616
- --------------------------------------------------------------------------------
Total assets 23,952,713
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 114,242
Payable to affiliates--Shareholder Servicing Agents' fees (Note 2B) 4,901
Accrued expenses and other liabilities 32,958
- --------------------------------------------------------------------------------
Total liabilities 152,101
- --------------------------------------------------------------------------------
NET ASSETS for 2,470,715 shares of beneficial interest outstanding $23,800,612
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $26,520,535
Accumulated net realized loss (2,565,197)
Unrealized depreciation (157,248)
Undistributed net investment income 2,522
- --------------------------------------------------------------------------------
Total $23,800,612
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $9.63
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (Note 1B):
Interest Income from Government Income Portfolio $632,392
Allocated Expenses from Government Income Portfolio (37,616)
- --------------------------------------------------------------------------------
$594,776
- --------------------------------------------------------------------------------
EXPENSES:
Shareholder Servicing Agents' fees (Note 2B) $ 26,970
Administrative fees (Note 2A) 26,970
Shareholder reports 19,453
Distribution fees (Note 3) 16,182
Audit fees 10,200
Custody and Fund Accounting fees 9,690
Transfer agent fees 7,500
Trustees' fees 5,050
Legal fees 3,384
Miscellaneous 3,911
- --------------------------------------------------------------------------------
Total expenses 129,310
Less aggregate amount waived by Administrator
and Distributor (Notes 2A and 3) (43,152)
Less Expenses Assumed by the Administrator (Note 6) (37,616)
- --------------------------------------------------------------------------------
Net expenses 48,542
- --------------------------------------------------------------------------------
Net investment income 546,234
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
GOVERNMENT INCOME PORTFOLIO:
Net realized gain 58,099
Net change in unrealized appreciation (depreciation) (19,519)
- --------------------------------------------------------------------------------
Net realized and unrealized gain from Government
Income Portfolio 38,580
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $584,814
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(Unaudited) 1997
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 546,234 $ 1,211,090
Net realized gain (loss) 58,099 (48,060)
Net change in unrealized appreciation
(depreciation) (19,519) 194,316
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 584,814 1,357,346
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (551,435) (1,224,908)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(Note 5):
Net proceeds from sale of shares 8,919,791 919,430
Net asset value of shares issued to
shareholders from reinvestment of dividends 548,061 1,216,313
Cost of shares repurchased (5,937,880) (8,775,300)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets from
transactions in shares of beneficial interest 3,529,972 (6,639,557)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,563,351 (6,507,119)
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 20,237,261 26,744,380
- --------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $2,522 and
$7,723, respectively) $23,800,612 $20,237,261
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
FOUR MONTHS
SIX MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED
JUNE 30, 1998 ----------------------------------------------- 1993+ AUGUST 31,
(Unaudited) 1997 1996 1995 1994+ (NOTE 1F) 1993+
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01 $ 9.85
Income From Operations:
Net investment income 0.237 0.504 0.516 0.543 0.466 0.183 0.448
Net realized and unrealized
gain (loss) 0.023 0.064 (0.232) 0.500 (0.635) (0.138) 0.183
- ------------------------------------------------------------------------------------------------------------------------
Total from operations 0.260 0.568 0.284 1.043 (0.169) 0.045 0.631
Less Distributions From:
Net investment income (0.240) (0.508) (0.514) (0.543) (0.461) (0.145) (0.464)
In excess of net investment
income -- -- -- -- -- -- (0.007)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.240) (0.508) (0.514) (0.543) (0.461) (0.145) (0.471)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.63 $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91 $ 10.01
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $23,801 $20,237 $26,744 $35,325 $52,933 $79,306 $82,114
Ratio of expenses to
average net assets 0.80%*(A) 0.80%(A) 0.80%(A) 0.80%(A) 0.80%(A) 0.80%* 0.80%
Ratio of net investment
income to average net assets 5.06%* 5.20% 5.31% 5.38% 4.72% 4.34%* 4.46%
Portfolio turnover (B) -- -- -- -- 22% 26% 111%
Total return 2.73%** 6.11% 3.02% 11.48% (1.72)% 0.45%** 6.59%
Note: If Agents of the Fund for the periods indicated and Agents of Government Income Portfolio for the periods
after May 1, 1994 had not voluntarily waived a portion of their fees and assumed Fund expenses, the net investment
income per share and the ratios would have been as follows:
Net investment income
per share $0.234 $0.442 $0.460 $0.499 $0.421 $0.164 $0.400
RATIOS:
Expenses to average
net assets 1.60%*(A) 1.43%(A) 1.38%(A) 1.23%(A) 1.26%(A) 1.27%* 1.27%
Net investment income to
average net assets 4.26%* 4.57% 4.73% 4.95% 4.26% 3.88%* 3.98%
- ------------------------------------------------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsequent to May 1,
1994.
(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 its investable assets in Government Income Portfolio.
</TABLE>
See notes to financial statements
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES The CitiFunds Short-Term U.S. Government
Income Portfolio (formerly Landmark U.S. Government Income Fund) (the "Fund") is
a separate diversified series of CitiFunds Fixed Income Trust (the "Trust"), a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end, management
investment company. The Fund invests all of its investable assets in Government
Income 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 objective to provide
shareholders with monthly dividends, as well as to protect the value of the
investment of shareholders by investing all of its investable assets in the
Portfolio, an open-end, diversified management investment company having the
same investment objective and policies and substantially the same investment
restrictions as the Fund. The value of such investment reflects the Fund's
proportionate interest (35.8% at June 30, 1998) in the net assets of the
Portfolio.
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 disclosure 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 investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1997, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,618,985, of which $1,741,548 will
expire on December 31, 2002, $329,508 will expire on December 31, 2003, $367,655
will expire on December 31, 2004, and $180,274 will expire on December 31, 2005.
Such capital loss carryover will reduce the Fund's taxable income arising from
future net realized capital gain on investment transactions, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income or excise tax.
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 $58,782 from accumulated net realized loss on
investments to paid-in capital.
F. Change in Fiscal Year End Effective September 1, 1993, the Fund changed
its fiscal year end from August 31 to December 31.
G. Other All the net investment income and 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 a trade date
basis.
2. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an 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 fees 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 $26,970, all of which 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 Trustee or 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 $26,970, for the six months ended June 30,
1998.
3. DISTRIBUTION FEES The Trust 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 $16,182, all
of which was voluntarily waived for the six months ended June 30, 1998. The
Distributor may also receive an additional fee from the Fund 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. No payment of such additional fees has been made
during the period. 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 $6,845,896 and
$3,911,418, respectively.
<PAGE>
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 924,937 95,978
Shares issued to shareholders from
reinvestment of dividends 56,945 127,315
Shares repurchased (616,211) (917,798)
- --------------------------------------------------------------------------------
Net increase (decrease) 365,671 (694,505)
- --------------------------------------------------------------------------------
6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
expenses of the Fund for the six months ended June 30, 1998, which amounted to
$37,616.
<PAGE>
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- -----------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 12.7%
- -----------------------------------------------------------------------
6.50%, 2009 $ 212 $ 214,563
6.50%, 2011 3,814 3,866,681
6.50%, 2019 1,039 1,041,780
7.00%, 2008 1,381 1,399,052
7.25%, 2022 623 627,909
8.00%, 2006 160 164,200
8.00%, 2007 175 180,868
8.00%, 2017 451 472,284
8.00%, 2021 168 175,415
8.00%, 2022 125 130,321
9.50%, 2016 2 1,892
9.50%, 2017 46 50,269
9.50%, 2018 39 42,382
9.50%, 2019 47 50,902
9.50%, 2020 41 44,449
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 8,462,967
-----------
UNITED STATES GOVERNMENT OBLIGATIONS--81.7%
Israel State U.S. Government
Guaranteed Notes
5.70% due 2/15/03 5,000 4,983,450
6.00% due 2/15/99 8,000 8,017,680
-----------
13,001,130
-----------
United States Treasury Notes,
5.75% due 09/30/99 3,000 3,007,980
5.625% due 12/31/99 10,000 10,015,600
5.375% due 6/30/00 2,000 1,996,250
6.875% due 3/31/00 7,400 7,564,206
5.375% due 2/15/01 7,500 7,474,200
6.50% due 08/31/01 5,000 5,135,950
6.125% due 12/31/01 4,000 4,072,480
5.75% due 04/30/03 2,000 2,019,680
-----------
41,286,346
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 54,287,476
-----------
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--3.8%
- --------------------------------------------------------------------------------
Salomon Brothers Repurchase Agreement 5.75%
due 07/01/98 proceeds at maturity
$2,544,400 (collateralized by $1,846,000
U.S. Treasury Note 8.875% due 2/15/98,
valued at $2,530,681) $ 2,544,000
-----------
TOTAL INVESTMENTS
(Identified Cost $65,483,307) 98.2% 65,294,443
OTHER ASSETS LESS LIABILITIES 1.8 1,175,704
----- -----------
NET ASSETS 100.0% $66,470,147
===== ===========
See notes to financial statements
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $65,483,307) $65,294,443
Cash 821
Interest receivable 1,194,176
- --------------------------------------------------------------------------------
Total assets 66,489,440
- --------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates--Investment advisory fees (Note 2) 19,293
- --------------------------------------------------------------------------------
NET ASSETS $66,470,147
- --------------------------------------------------------------------------------
REPRESENTED BY:
Paid-in capital for beneficial interests $66,470,147
- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME: (Note 1B): $1,879,440
EXPENSES:
Investment advisory fees (Note 2) $ 111,786
Administrative fees (Note 3) 15,969
Expense fees (Note 6) 2,000
- --------------------------------------------------------------------------------
Total expenses 129,755
- --------------------------------------------------------------------------------
Less aggregate amount waived by the Investment Adviser
and Administrator (Note 2 and Note 3) (17,969)
- --------------------------------------------------------------------------------
Net expenses 111,786
- --------------------------------------------------------------------------------
Net investment income 1,767,654
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 174,037
Net change in unrealized appreciation (depreciation) of
investments (69,786)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 104,251
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,871,905
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(Unaudited) 1997
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 1,767,654 $ 3,170,048
Net realized gain (loss) on investment
transactions 174,037 (113,894)
Net change in unrealized appreciation
(depreciation) of investments (69,786) 507,465
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,871,905 3,563,619
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 14,543,244 26,243,756
Value of withdrawals (11,242,999) (22,008,195)
- --------------------------------------------------------------------------------
Net increase in net assets from capital
transactions 3,300,245 4,235,561
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 5,172,150 7,799,180
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 61,297,997 53,498,817
- --------------------------------------------------------------------------------
End of period $66,470,147 $61,297,997
- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
FOR THE PERIOD
MAY 1, 1994
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
JUNE 30, 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) $66,470 $61,298 $53,499 $53,145 $55,673
Ratio of expenses to
average net assets 0.35%* 0.35% 0.35% 0.36% 0.43%*
Ratio of net investment income
to average net assets 5.53%* 5.65% 5.75% 5.80% 5.27%*
Portfolio turnover 159% 126% 100% 284% 40%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees during the
periods indicated, the ratios would have been as follows:
RATIOS:
Expenses to average
net assets 0.40%* 0.41% 0.40% 0.40% 0.44%*
Net investment income
to average net assets 5.48%* 5.59% 5.70% 5.76% 5.26%*
- -------------------------------------------------------------------------------------------------
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Government Income Portfolio (the
"Portfolio"), a separate series of The Premium Portfolios (the "Portfolio
Trust"), is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The 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 Debt securities (other than short-term
obligations maturing in 60 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 60 days or less are valued at
amortized cost, which approximates market value. Securities, if any, for which
there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as income.
C. U.S. Federal Income Taxes The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled 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 maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. Buying futures contracts tends to increase the Portfolio's
exposure to the underlying instrument. Selling futures contracts tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other 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. No such instruments were
held at June 30, 1998.
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 $111,786,
of which $2,000 was voluntarily waived, for the six months ended June 30, 1998.
The investment advisory fees are computed at the annual rate of 0.35% 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, are computed at the
annual rate of 0.05% of the Portfolio's average daily net assets. The
Administrative fees amounted to $15,969 all of which 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 SFG as from time to
time is agreed to by SFG and Citibank. The Portfolio pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain 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 U.S. Government
securities, other than short-term obligations, aggregated $98,054,776 and
$93,642,714, respectively, for the six months ended June 30, 1998.
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 $65,483,307
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 111,840
Gross unrealized depreciation (300,704)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (188,864)
- --------------------------------------------------------------------------------
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 0.35% of the
Portfolio's average daily net assets.
7. LINE OF CREDIT The Portfolio, along with 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 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
$108. 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 GOVERNMENT INCOME 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/USG/698
