Semi-Annual Report o April 30, 1999
Intermediate
Income Portfolio
B O N D S
Investment products:
Not FDIC Insured o No Bank Guarantee o May Lose Value
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Portfolio Highlights 3
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Fund Performance 4
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CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Statement of Assets and Liabilities 5
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Statement of Operations 6
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Statement of Changes in Net Assets 7
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Financial Highlights 8
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Notes to Financial Statements 10
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U.S. FIXED INCOME PORTFOLIO
Portfolio of Investments 14
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Statement of Assets and Liabilities 17
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Statement of Operations 18
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Statement of Changes in Net Assets 19
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Financial Highlights 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 November 1, 1998 through April
30, 1999, for CitiFunds Intermediate Income Portfolio. Inside, the CitiFunds'
investment manager, Citibank, N.A., discusses the market conditions it faced,
the strategies it employed as well as its outlook for the future.
The reporting period saw a continuation of the strong economic conditions
that have dominated the U.S. for more than seven years. Lower short-term
interest rates adopted by the Federal Reserve Board in the fall of 1998 appear
to have helped U.S. businesses withstand the effects of economic weakness in
Japan, Asia and Latin America. Consumer spending remained high, unemployment was
low and inflationary pressures continued to be virtually absent.
These economic conditions produced mixed results for fixed income securities
over the past six months. U.S. Treasury securities, which rallied strongly last
summer when the stock market and other bond markets declined sharply, gave back
some of their gains. Other types of bonds did relatively better, however, as
investors shifted assets back into bond market sectors they had previously
avoided, including corporate bonds, mortgage-backed securities, asset-backed
securities and foreign bonds. Accordingly, many investment grade fixed income
funds, including CitiFunds Intermediate Income Portfolio, repositioned their
portfolios during the reporting period to adjust to rapidly changing market
conditions.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
- --------------------------------
Philip W. Coolidge
President
May 20, 1999
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
Much has changed in the U.S. bond market since November 1998. When the
reporting period began, the Federal Reserve Board ("Fed") had already lowered
short-term interest rates twice in an effort to assure investors worldwide that
they would provide the necessary liquidity to help stabilize the financial
markets until the second interest rate cut in mid-October. Many bond market
investors appeared to be unimpressed. Investors continued to favor U.S. Treasury
securities over the higher risk/higher return sectors of the bond market,
causing the differences in yields between those types of bonds and U.S. Treasury
securities to remain at historically wide levels.
In November, the Fed reduced short-term interest rates a third time in 1998
seeking assurance that the global financial markets were functioning normally.
During the reporting period, central banks worldwide followed the Fed's lead, as
they attempted to curb the spread of the currency and credit crisis that began
in Asia in 1997 and spread to Russia and parts of Latin America in 1998. Finally
convinced that the Fed and its foreign counterparts understood the extent of the
world's financial problems, investors gradually shifted assets back to higher
risk/higher return securities. As a result, the differences in yields between
U.S. Treasury securities and other types of bonds began to narrow.
During the reporting period, the Portfolio's allocations in U.S. Treasury
issues, asset-backed securities and corporate bonds remained virtually the same.
With respect to its mortgage obligation holdings, the U.S. Fixed Income
Portfolio had 47% invested in these securities as of April 30, 1999 versus 27%
invested in mortgage-obligations as of October 31, 1998.
Similarly, we adjusted the Portfolio's average duration, a measure of
sensitivity to changing interest rates. Throughout the final months of 1998 and
the beginning of 1999, the Portfolio's average duration remained on the long
side, enabling us to maintain higher yields for as long as possible while
interest rates fell. At the end of February 1999, however, we reduced the
Portfolio's average duration in anticipation of stable to modestly rising
interest rates. This change in duration was intended to help us take advantage
of higher yields, as they became available.
Looking forward, we expect the U.S. economy to remain relatively strong and
overseas economies to improve. As of April 30, 1999, yields on higher
risk/higher return securities remained at wider than average levels relative to
U.S. Treasury securities. In our opinion, corporate bonds, mortgage-backed
securities and asset-backed securities are likely to continue to benefit from
strong investor demand.
With U.S. interest rates expected to remain within a relatively narrow range,
we intend to adjust the Portfolio's average duration tactically, shortening it
modestly when interest rates appear to be rising and extending it when interest
rates seem likely to fall. In our view, these strategies should help CitiFunds
Intermediate Income Portfolio meet the challenges of delivering a high level of
income despite constantly changing bond market conditions.
2
<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 4/30/99 BENCHMARKS
Class A shares o Lipper Intermediate Investment
$76.5 million Grade Funds Average
Class B shares o Lehman Aggregate Bond Index*
$3.0 million
* The Lehman Aggregate Bond Index is an unmanaged index of U.S. Government and
Corporate bonds representing a broad measure of the performance of taxable
bonds in the U.S. market, with maturities of at least one year.
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 1999 (Unaudited)
[Pie Chart]
Preffered Stock 1%
*Short Term (18%)
Asset Backed Securities 4%
Mortgage Obligations 47%
Corporate Bonds 33%
U.S. Treasury Issues 33%
*Includes cash and other net assets
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
SIX ONE FIVE 6/25/93
ALL PERIODS ENDING APRIL 30, 1999 (Unaudited) MONTHS** YEAR YEARS* INCEPTION*
============================================================================================
<S> <C> <C> <C> <C>
CitiFunds Intermediate Income Portfolio (Class A)
without sales charge (0.58)% 4.78% 6.79% 5.53%
Lipper Intermediate Investment Grade Funds
Average 0.57% 5.12% 7.15% 5.38%+
Lehman Aggregate Bond Index 0.68% 6.27% 8.03% 6.65%+
CitiFunds Intermediate Income Portfolio (Class A)
with a maximum sales charge of 4.50% (5.05)% 0.06% 5.81% 4.71%
CitiFunds Intermediate Income Portfolio (Class B)
without deferred sales charge -- -- -- (1.08)%#**
Lipper Intermediate Investment Grade Funds
Average -- -- -- (0.22)%++*
Lehman Aggregate Bond Index -- -- -- (0.18)%++**
CitiFunds Intermediate Income Portfolio (Class B)
with a maximum deferred sales charge of 4.50% -- -- -- (5.53)%#**
</TABLE>
* Average Annual Total Return
** Not Annualized
+ From 6/30/93
++ From 12/31/98
# From 1/4/99
30-Day SEC Yield Class A 4.78%
30-Day SEC Yield Class B 4.32%
Income Dividends Per Share Class A $0.234
Income Dividends Per Share Class B $0.113
Growth of a $10,000 Investment A $10,000 investment in the Fund made on
inception date would have grown to $13,086 with sales charge (as of 4/30/99).
The graph shows how this compares to its benchmarks over the same period.
Date Lipper Intermediate Lehman Aggregate CitiFunds Intermediate
Inv. Grade Avg. Bond Index Income Fund
6/25/93 10000
6/30/93 10000 10000 9579
7/31/93 10042 10057 9620
8/31/93 10228 10233 9860
9/30/93 10268 10261 9937
10/31/93 10301 10299 9947
11/30/93 10209 10211 9785
12/31/93 10257 10266 9835
1/31/94 10387 10405 9975
2/28/94 10202 10224 9755
3/31/94 9980 9971 9519
4/30/94 9890 9891 9424
5/31/94 9875 9890 9398
6/30/94 9856 9869 9368
7/31/94 10004 10065 9527
8/31/94 10024 10077 9553
9/30/94 9911 9929 9393
10/31/94 9896 9920 9357
11/30/94 9867 9898 9321
12/31/94 9914 9967 9395
1/31/95 10072 10164 9570
2/28/95 10281 10406 9788
3/31/95 10345 10469 9857
4/30/95 10478 10616 9969
5/31/95 10848 11027 10438
6/30/95 10916 11107 10497
7/31/95 10887 11083 10448
8/31/95 11009 11217 10542
9/30/95 11106 11326 10657
10/31/95 11244 11473 10695
11/30/95 11401 11645 10801
12/31/95 11546 11808 10941
1/31/96 11622 11886 10991
2/29/96 11423 11679 10772
3/31/96 11345 11597 10687
4/30/96 11276 11532 10613
5/31/96 11256 11509 10564
6/30/96 11384 11664 10739
7/31/96 11410 11695 10756
8/31/96 11401 11675 10725
9/30/96 11587 11878 10928
10/31/96 11821 12142 11167
11/30/96 12016 12350 11360
12/31/96 11910 12235 11239
1/31/97 11805 12273 11292
2/28/97 11829 12303 11320
3/31/97 11705 12167 11181
4/30/97 11857 12349 11354
5/31/97 11959 12467 11444
6/30/97 12092 12615 11570
7/31/97 12403 12956 11858
8/31/97 12294 12846 11743
9/30/97 12465 13034 11910
10/31/97 12522 13223 12117
11/30/97 12557 13284 12111
12/31/97 12670 13418 12236
1/31/98 12833 13590 12433
2/28/98 12815 13580 12402
3/31/98 12861 13626 12448
4/30/98 12916 13697 12490
5/31/98 13031 13827 12622
6/30/98 13125 13944 12729
7/31/98 13147 13974 12733
8/31/98 13307 14201 12972
9/30/98 13601 14534 13250
10/31/98 13502 14457 13162
11/30/98 13564 14539 13180
12/31/98 13609 14583 13223
1/31/99 13696 14686 13299
2/28/99 13441 14429 12975
3/31/99 13538 14509 13064
4/30/99 13579 14555 13086
Citifunds Intermediate Income Portfolio (Class A)
Lipper Intermediate Investment Grade Funds Average
Lehman Aggregate Bond Index
The graph includes the initial maximum sales charge on the Fund (no comparable
charge exists for the other indices) and 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 "with sales charge" 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. The maximum sales charge of
4.50% went into effect on January 4, 1999. Investors may not invest directly in
an index.
4
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investment in U.S. Fixed Income Portfolio at value (Note 1A) $80,601,814
Receivable for shares of beneficial interest sold 98,292
Receivable from Sub-Administrator 25,462
- --------------------------------------------------------------------------------
Total assets 80,725,568
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LIABILITIES:
Payable for shares of beneficial interest repurchased 1,115,989
Accrued expenses and other liabilities 72,924
Dividends payable 54,107
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Total liabilities 1,243,020
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NET ASSETS $79,482,548
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $82,561,340
Accumulated net realized loss from investment transactions
and futures contracts
(2,334,429)
Unrealized depreciation of investments and futures contracts (643,667)
Accumulated net investment loss (100,696)
- --------------------------------------------------------------------------------
Total $79,482,548
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($76,531,930/7,880,763 shares outstanding) $ 9.71
Offering price per share ($9.71 / 0.955) $10.17*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price ($2,950,618/303,211 shares
outstanding) $9.73**
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
deferred contingent sales charges.
See notes to financial statements
5
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest Income from U.S. Fixed Income Portfolio $2,415,733
Allocated Expenses from U.S. Fixed Income Portfolio (168,906)
- --------------------------------------------------------------------------------
$2,246,827
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 148,451
Service fees Class A (Note 3) 104,739
Service fees Class B (Note 3) 3,892
Audit fees 27,229
Shareholder reports 26,532
Transfer agent fees 21,481
Custody and fund accounting fees 10,456
Legal fees 9,336
Trustees fees 7,244
Other 29,982
- --------------------------------------------------------------------------------
Total expenses 389,342
Less expenses assumed by the Sub-Administrator (Note 6) (25,462)
Less aggregate amounts waived by the Manager (Note 2) (148,451)
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Net expenses 215,429
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Net investment income 2,031,398
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM U.S. FIXED INCOME PORTFOLIO:
Net realized loss from investment transactions (133,260)
Net realized gain on futures transactions 43,007
Unrealized depreciation of
investments and future contracts (2,327,053)
- --------------------------------------------------------------------------------
Net realized and unrealized loss from
U.S. Fixed Income Portfolio (2,417,306)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (385,908)
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TEN MONTHS
SIX MONTHS ENDED YEAR ENDED
ENDED OCTOBER 31, ENDED
APRIL 30, 1999 1998 DECEMBER 31,
(Unaudited) (Note 1F) 1997
=================================================================================================
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 2,031,398 $ 2,071,831 $ 2,329,594
Net realized gain (loss) (90,253) 743,318 272,468
Unrealized appreciation (depreciation) (2,327,053) 662,088 649,983
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (385,908) 3,477,237 3,252,045
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (Class A) (2,112,510) (2,112,415) (2,338,323)
Net investment income (Class B) (19,584) -- --
- -------------------------------------------------------------------------------------------------
Decrease in net assets from
distribution to shareholder (2,132,094) (2,112,415) (2,338,323)
- -------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 24,632,413 45,904,926 595,327
Net asset value of shares issued to shareholders
from reinvestment of distributions 2,060,933 2,110,978 2,335,328
Cost of shares repurchased (24,462,536) (9,293,925) (11,061,426)
- -------------------------------------------------------------------------------------------------
Total Class A 2,230,810 38,721,979 (8,130,771)
- -------------------------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 2,983,623 -- --
Net asset value of shares issued to shareholders
from reinvestment of distributions 15,370 -- --
Cost of shares repurchased (17,617) -- --
- -------------------------------------------------------------------------------------------------
Total Class B 2,981,376 -- --
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
transactions in shares of beneficial interest 5,212,186 38,721,979 (8,130,771)
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 2,694,184 40,086,801 (7,217,049)
- -------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 76,788,364 36,701,563 43,918,612
- -------------------------------------------------------------------------------------------------
End of period (including undistributed
net investment income (loss) of
($110,696), $0 and $26,955,
respectively) $ 79,482,548 $ 76,788,364 $ 36,701,563
=================================================================================================
</TABLE>
* January 4, 1999 (Commencement of Operations) to April 30, 1999.
See notes to financial statements
7
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
---------------------------------------------------------
TEN
SIX MONTHS MONTHS
ENDED ENDED
APRIL 30, OCTOBER 31, YEAR ENDED DECEMBER 31,
1999 1998 -------------------------------
(Unaudited) (Note 1F) 1997 1996 1995 1994
================================================================================
Net Asset Value,
beginning of period $10.00 $9.72 $9.48 $9.77 $8.91 $9.88
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.219 0.447 0.575 0.54 0.57 0.521
Net realized and unrealized
gain (loss) on
investments (0.275) 0.272 0.239 (0.29) 0.86 (0.959)
- --------------------------------------------------------------------------------
Total from
operations (0.056) 0.719 0.814 0.25 1.43 (0.438)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.234) (0.439) (0.574) (0.54) (0.57) (0.516)
Net realized gain on
investments -- -- -- -- -- (0.016)
- --------------------------------------------------------------------------------
Total distributions (0.234) (0.439) (0.574) (0.54) (0.57) (0.532)
- --------------------------------------------------------------------------------
Net Asset Value,
end of period $9.71 $10.00 $9.72 $9.48 $9.77 $8.91
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $76,532 $76,788 $36,702 $43,919 $49,618 $47,582
Ratio of expenses to
average net assets(A) 0.90%* 0.91%* 0.92% 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 4.79%* 5.30%* 5.92% 5.72% 5.97% 5.52%
Portfolio turnover(B) -- 120% 146% 495% 396% 291%
Total return (0.58)%** 7.57%** 8.87% 2.73% 16.45% (4.48)%
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 $0.198 $0.412 $0.522 $0.50 $0.52 $0.475
RATIOS:
Expenses to average
net assets(A) 1.37%* 1.33%* 1.47% 1.39% 1.42% 1.39%
Net investment income to
average net assets 4.32%* 4.88%* 5.37% 5.23% 5.45% 5.03%
================================================================================
* 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 before December 31, 1995
have not been adjusted to reflect this change.
(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.
See notes to financial statements
8
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
---------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
APRIL 30, 1999
(Unaudited)
================================================================================
Net Asset Value,
beginning of period $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.127
Net realized and unrealized
gain (loss) on investments (0.284)
- --------------------------------------------------------------------------------
Total from operations (0.157)
Less Distributions From:
Net investment income (0.113)
- --------------------------------------------------------------------------------
Net Asset Value,
end of period $9.73
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $2,951
Ratio of expenses to average net assets 1.40%
Ratio of expenses to average net assets after fees paid indirectly 1.40%
Ratio of net investment income to average net assets 4.65%
Total return (1.08)%**
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 $0.105
RATIOS:
Expenses to average net assets 1.87%*
Net investment income to average net assets 4.18%*
================================================================================
* Annualized
** Not Annualized
See notes to financial statements
9
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies CitiFunds Intermediate Income Portfolio (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. Effective November 1, 1998, the Fund invests all
of its investable assets in U.S. Fixed Income Portfolio (the "Portfolio") a
management investment company for which Citibank, N.A. ("Citibank") serves as
Investment Manager. The value of such investment reflects the Fund's
proportionate interest (at April 30, 1999) in the net assets of the Portfolio.
The Investment Manager of the Fund is Citibank, N.A. ("Citibank"). CFBDS, Inc.
("CFBDS") acts as the Fund's Sub-Administrator and Distributor.
The Fund offers Class A 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 higher ongoing distribution fee than Class A, but 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 own
pro-rata share of the net assets of the Fund, if the Fund were liquidated. Class
A shares have lower expense ratios than Class B.
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 Funds' financial statements.
The preparation of financial statements in accordance with generally accepted
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 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
10
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
investment transactions. Accordingly, no provision for federal income or excise
tax is necessary. At October 31, 1998, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,218,509 of which $1,142,935 will
expire on October 31, 2002 and $1,075,574 which will expire on October 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. Change in Fiscal Year End During fiscal year 1998, the Fund changed its
fiscal year end from December 31 to October 31.
G. 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. 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, 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.
11
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
The management fees paid to Citibank, are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.35% of the Funds' average
daily net assets. The management fee amounted to $148,451 all of which was
voluntarily waived for the six months ended April 30, 1999.
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 $104,739 for
the six months ended April 30, 1999. Under the Class B Service Plan, the Fund
may pay a combined monthly distribution and service fee at an annual rate not to
exceed 0.75% of the average daily net assets represented by Class B shares of
the Fund. The Service fees for Class B shares amounted to $3,892 for the period
ended April 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 or the maintenance
of shareholder accounts.
4. INVESTMENT TRANSACTIONS On November 1, 1998 the Fund transferred all of its
investable assets of $76,788,364 to the Portfolio in exchange for an interest in
the Portfolio, including $1,683,386 of unrealized appreciation. Increases and
decreases in the Fund's investment in the Portfolio for the six months ended
April 30, 1999 aggregated $19,932,006 and $15,314,777, respectively.
12
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
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 TEN MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998 DECEMBER 31,
(Unaudited) (Note 1F) 1997
================================================================================
CLASS A
Shares sold 2,478,904 4,626,775 62,642
Shares issued to shareholders from
reinvestment of distributions 208,805 214,180 244,817
Shares repurchased (2,483,314) (940,430) (1,162,555)
- --------------------------------------------------------------------------------
Class A Net increase (decrease) 204,395 3,900,525 (855,096)
================================================================================
CLASS B*
Shares sold 303,444
Shares issued to shareholders from
reinvestment of distributions 1,567
Shares repurchased (1,800)
- --------------------------------------------------------------------------------
Class B Net increase 303,211
================================================================================
* January 4, 1999 (Commencement of Operations) to April 30, 1999.
6. ASSUMPTION OF EXPENSES CFBDs has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the six months ended April 30, 1999 which
amounted to $25,462.
13
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS April 30, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ------------------------------------------------------
FIXED INCOME -- 118.3%
- ------------------------------------------------------
ASSET BACKED SECURITIES -- 4.3%
- ------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $ 375 $ 379,324
Contimortgage Home
Equity Loan
6.13% due 3/15/13 500 499,685
Green Tree Financial Corp.
6.71% due 8/15/29 550 539,863
8.05% due 10/15/27 1,500 1,555,305
IMC Home Equity Loan
6.16% due 5/20/14 1,000 1,003,110
----------
3,977,287
----------
DOMESTIC CORPORATIONS -- 31.5%
- ------------------------------------------------------
Aircraft Financial Trust
8.00% due 5/15/24 1,300 1,281,719
Allstate Corp.
6.75% due 5/15/18 1,030 1,022,017
American Financial
Group Inc.
7.125% due 4/15/09 910 882,554
Associates Corp. of N. A
6.95% due 11/01/18 1,000 1,004,460
BB&T Corp.
6.375% due 6/30/05 1,330 1,328,311
Bank One Corp.
5.625% due 2/17/04 1,000 979,530
Century Enterprises Inc.
6.30% due 1/15/08 750 741,900
Conoco Inc.
5.90% due 4/15/04 910 902,147
Conseco Inc.
6.40% due 6/15/01 350 345,992
Dayton Hudson Corp.
6.65% due 8/01/28 1,105 1,065,485
Equitable Life Assurance
6.95% due 12/01/05 1,000 1,024,230
Ford Motor Co.
6.625% due 10/01/28 1,165 1,118,295
General Motors
Acceptance Corp.
6.15% due 4/05/07 940 931,756
Household Financial Corp.
6.50% due 11/15/08 $ 1,130 $ 1,124,113
Knight Ridder Inc.
6.875% due 3/15/29 700 684,358
Lehman Brothers
Holdings, Inc.
6.375% due 3/15/01 775 778,340
6.40% due 8/30/00 930 935,943
MCI Communications Corp.
6.50% due 4/15/10 1,395 1,403,230
Mattel Inc.
6.00% due 7/15/03 700 695,456
May Department
Stores Co.
5.95% due 11/01/08 650 637,377
Merita Bank PLC
6.50% due 4/01/09 935 921,966
Morgan Stanley
Dean Witter & Co.
5.625% due 1/20/04 1,000 985,300
National Rural Utilities
6.20% due 2/01/08 1,235 1,236,136
Nordstrom Inc.
5.625% due 1/15/09 765 722,933
Norfolk Southern Corp.
7.35% due 5/15/07 705 750,754
Peco Energy
6.05% due 3/01/09 1,000 991,250
Petroleum Geological
Services
6.625% due 3/30/08 565 553,175
Popular, Inc.
6.20% due 4/30/01 650 648,330
Raytheon Co.
6.30% due 3/15/05 910 918,081
Sears Credit Account
Master Trust
5.25% due 10/16/08 820 797,188
TPSA Financial
7.75% due 12/10/08 765 778,289
Union Carbide Corp.
6.70% due 4/01/09 930 922,743
----------
29,113,358
----------
14
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS April 30, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ------------------------------------------------------
MORTGAGE OBLIGATIONS -- 47.1%
- ------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 12.6%
- ------------------------------------------------------
Asset Securitization Corp.
Series 95
7.10% due 8/13/29 $ 255 $ 265,701
7.384% due 8/13/29 1,000 1,054,540
Asset Securitization Corp.
Series 97
6.85% due 2/14/41 225 230,796
Commercial Mortgage Corp.
5.80% due 3/15/06 265 259,968
Commercial Mortgage
Passthrough 1999
7.239% due 10/15/08 1,300 1,274,806
CRIMI Mae Commercial
Mortgage Trust
7.00% due 11/02/11 500 393,594
GE Capital Mortgage
Services, Inc.
5.905% due 10/25/13 2,000 1,994,860
GMAC Commercial
Mortgage Inc.
6.42% due 8/15/08 550 549,389
6.83% due 12/15/03 457 463,693
J.P. Morgan Commercial
Mortgage Financial Corp.
6.373% due 1/15/30 234 235,406
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 459 469,626
Morgan Stanley Capital
Investment Inc.
6.44% due 11/15/02 475 479,451
Nomura Asset
Securitization Corp.
8.15% due 3/04/20 1,000 1,078,990
Norwest Asset
Securitization Corp.
6.75% due 11/25/27 2,000 2,006,960
Residential Asset
Securitization Trust
7.00% due 2/25/08 180 181,309
Structured Asset
Securities Corp.
6.79% due 6/12/04 695 713,408
----------
11,652,497
----------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- -------------------------------------------------------
MORTGAGE BACKED SECURITIES/
PASSTHROUGHS -- 20.2%
- -------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.25% due 6/15/24 $ 535 $ 531,680
6.75% due 8/15/04 1,500 1,512,648
8.50% due 4/01/01 10 9,933
----------
2,054,261
Federal National
Mortgage Association
5.49% due 8/18/00 5,000 5,014,850
6.50% due 12/01/29 TBA* 6,635 6,628,133
6.50% due 8/25/22 1,500 1,478,512
7.412% due 8/17/21 2,341 2,453,722
7.50% due 10/01/25 750 771,110
7.50% due 5/01/26 169 173,806
7.50% due 6/01/26 31 31,952
8.00% due 6/01/02 8 8,085
----------
16,560,170
----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 14.3%
- ------------------------------------------------------
6.50%
due 12/15/29 TBA* 500 495,545
6.50%
due 12/31/29 TBA* 2,000 1,981,875
7.00%
due 12/31/29 TBA* 6,600 6,676,296
7.00% due 2/15/24 1,033 1,049,625
7.25% due 10/16/22 869 873,623
7.50%
due 12/31/29 TBA* 2,000 2,056,260
8.00% due 12/15/07 42 43,715
----------
13,176,939
TOTAL MORTGAGE OBLIGATIONS 43,443,867
----------
YANKEE BONDS -- 2.1%
- ------------------------------------------------------
Corporacion Andina
De Fomento
7.75% due 3/01/04 1,000 1,000,624
Korea Development Bank
7.125% due 4/22/04 910 897,505
----------
1,898,129
----------
15
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) April 30, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ------------------------------------------------------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 33.3%
- ------------------------------------------------------
UNITED STATES TREASURY BONDS -- 7.2%
6.625% due 2/15/27 $1,150 $ 1,264,816
6.125% due 11/15/27 2,650 2,743,174
3.625% due 4/15/28 610 584,851
5.25% due 11/15/28 2,200 2,035,682
----------
6,628,523
----------
UNITED STATES TREASURY NOTES -- 23.9%
- ------------------------------------------------------
6.00% due 6/30/99 50 50,117
5.625% due 4/30/00 215 216,378
5.50% due 12/31/00 1,650 1,660,824
6.625% due 6/30/01 2,665 2,745,776
6.50% due 5/31/02 1,000 1,036,250
5.75% due 11/30/02 5,005 5,091,036
4.25% due 11/15/03 2,000 1,920,940
7.875% due 11/15/04 460 515,485
6.50% due 5/15/05 580 614,075
6.875% due 5/15/06 2,735 2,970,456
6.625% due 5/15/07 3,720 4,008,300
3.875% due 1/15/09 1,275 1,273,406
----------
22,103,043
----------
UNITED STATES AGENCY OBLIGATIONS -- 0.8%
- ------------------------------------------------------
Tennessee Valley Authority
5.88% due 4/01/36 750 761,062
----------
OTHER GOVERNMENT OBLIGATIONS -- 1.4%
- ------------------------------------------------------
Manitoba Province
5.50% due 10/01/08 1,300 1,253,772
----------
TOTAL UNITED STATES
GOVERNMENT & OTHER
GOVERNMENT OBLIGATIONS 30,746,400
----------
TOTAL FIXED INCOME
(Identified Cost
$110,173,821) 109,179,041
-----------
PREFERRED STOCK -- 0.6%
- ------------------------------------------------------
Comed Financing I
(Identified Cost
$590,291) 23 592,097
-----------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ------------------------------------------------------
SHORT-TERM OBLIGATIONS
AT AMORTIZED COST -- 0.3%
- ------------------------------------------------------
United States Treasury Bills
4.19% due 6/24/99 $ 60 $ 59,623
4.23% due 6/24/99 30 29,809
4.38% due 6/24/99 12 11,921
4.495% due 6/24/99 170 168,854
--------
TOTAL SHORT-TERM
OBLIGATIONS 270,207
--------
TOTAL INVESTMENTS
(Identified Cost
$111,034,319) 119.2% 110,041,345
----- -----------
OTHER ASSETS,
LESS LIABILITIES (19.2) (17,723,292)
----- -----------
NET ASSETS 100.0% $92,318,053
===== ===========
FUTURES CONTRACTS
- ----------------------------------------------------
Futures contracts which were open at April 30,
1999 are as follows :
AGGREGATE
FACE
NUMBER VALUE UNREALIZED
DESCRIPTION/ OF OF EXPIRATION GAIN/
POSITION CONTRACTS CONTRACTS DATE (LOSS)
- --------------------------------------------------------------------------------
U.S. Treasury
30 Year June,
Bond (sell) (75) ($7,500,000) 1999 $32,250
U.S. Treasury
Two Year June,
Note (buy) 40 4,500,000 1999 (7,025)
U.S. Treasury
Ten Year June,
Note (sell) (20) (2,000,000) 1999 19,850
-------
$45,075
-------
* TBA's are mortgage-backed securities traded under delayed delivery
commitments; settling after April 30, 1999. Although the unit price for the
trade has been established, the principal value has not been finalized. However,
the amount of the commitment will not fluctuate more than 2% from the principal
amount. Income on TBA's is not earned until the settlement date.
See notes to financial statements
16
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
APRIl 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $111,034,319) $110,041,345
Cash 62,026
Interest receivable 1,299,191
Receivable for daily variation on futures contracts 175,319
- --------------------------------------------------------------------------------
Total assets 111,577,881
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments repurchased 19,215,027
Payable to affiliates--Management Fee (Note 2) 6,870
Accrued expenses and other liabilities 37,931
- --------------------------------------------------------------------------------
Total liabilities 19,259,828
- --------------------------------------------------------------------------------
NET ASSETS $92,318,053
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $92,318,053
================================================================================
See notes to financial statements
17
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1999 (Unaudited)
================================================================================
Investment Income (Note 1B):
Interest Income $2,614,844
Dividend Income 24,433
- --------------------------------------------------------------------------------
$2,639,277
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 161,358
Custody and fund accounting fees 39,045
Audit fees 21,235
Legal fees 13,000
Trustees fees 2,931
Other 2,137
- --------------------------------------------------------------------------------
Total expenses 239,706
Less aggregate amounts waived by the Manager (Note 2) (55,282)
- --------------------------------------------------------------------------------
Net expenses 184,424
- --------------------------------------------------------------------------------
Net investment income 2,454,853
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized depreciation of investments (947,905)
Less unrealized appreciation from contributed
assets (Note 1) 1,683,386
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (2,631,291)
- --------------------------------------------------------------------------------
Net realized gain from futures transactions 49,413
Net realized loss from investment transactions (156,037)
- --------------------------------------------------------------------------------
Net realized loss from investment and futures transactions (106,624)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (2,737,915)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (283,062)
================================================================================
See notes to financial statements
18
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1999
(Unaudited)
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,454,853
Net realized loss from investment transactions (106,624)
Unrealized depreciation of investments (2,631,291)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (283,062)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 110,812,931
Value of withdrawals (18,211,816)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 92,601,115
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 92,318,053
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $92,318,053
================================================================================
See notes to financial statements
19
<PAGE>
U.S. FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1998
(COMMENCEMENT
OF OPERATIONS) TO
APRIL 30, 1999
(Unaudited)
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $ 92,318
Ratio of expenses to average net assets 0.40%*
Ratio of net investment income to average net assets 5.28%*
Portfolio turnover 80%
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 0.52%*
Net investment income to average net assets 5.16%*
================================================================================
*Annualized
See notes to financial statements
20
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES U.S. Fixed Income Portfolio (the
"Portfolio"), a separate series of The Premium Portfolios (the "Portfolio
Trust"), is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Portfolio commenced
operations on November 1, 1998. The Declaration of Trust permits the Trustees to
issue beneficial interests in the Portfolio. The Investment Manager of the
Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand
Cayman), Ltd. ("SFG") acts as the Administrator.
On November 1, 1998, CitiFunds Intermediate Income Portfolio transferred all
of its investable assets in the amount of $76,788,364 including $1,683,386 of
unrealized appreciation to the Portfolio in exchange for an interest in the
Portfolio. The total investable assets along with current period contributions
are included in the "Proceeds from Contributions" on the Statement of Changes in
Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. Investment Security Valuations Debt securities (other than short-term
obligations maturing in sixty days or less) are valued on the basis of
valuations furnished by pricing services, which take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, and other market data,
without exclusive reliance upon quoted prices or exchange or over-the-counter
prices since such valuations are believed to reflect more accurately the fair
value of the securities. Short-term obligations (maturity in sixty days or less)
are valued at amortized cost; which approximates market value. Securities, if
any, for which there are no such valuations or quotations are valued at fair
value as determined in good faith by or under guidelines established by the
Trustees.
B. Income Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as ordinary income.
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.
21
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
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 amounted)
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 higher-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 addition to the risk of decline in the value of
the Portfolio's other assets. Unsettled TBApurchase commitments are valued at
the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBApurchase commitments with
the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
G. Futures Contracts The Portfolio may engage in futures transactions. The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuations in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio's portfolio in an effort to reduce potential losses
or enhance potential gains. Buying futures contracts tends to increase the
Portfolio's exposure to the underlying instrument. Selling futures contracts
tends to either decrease the Portfolio's exposure to the underlying instrument,
or to hedge other fund investments.
22
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
Upon entering into a futures contract, the Portfolio is required to deposit
with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin".
Subsequent payments ("variation margin") are made or received by the Portfolio
each day, depending on the daily fluctuation of the value of the contract. The
daily changes in contract value are recorded as unrealized gains or losses and
the Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the settlement price established by the board of
trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities.
H. Other Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a Management Agreement with the Portfolio.
Citibank also provides certain administrative services to the Portfolio. These
administrative services include providing general office facilities and
supervising the overall administration of the Portfolio. CFBDS acts as
Sub-Administrator and performs such duties and receives such compensation from
Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary
of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc. which was completed on October 8, 1998.
The management fees paid to Citibank amounted to $161,358, of which $55,282
was voluntarily waived for the period November 1, 1998 (commencement of
operations) to April 30, 1999. The management fees are computed at the annual
rate of 0.35% of the Portfolio's average daily net assets. The Trust pays no
compensation directly to any Trustee or any other officer who is affiliated with
the Sub-Administrator, all of whom receive remuneration for their services to
the Trust from the Sub-Administrator or its affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $138,338,843 and $91,518,321,
respectively, for the period November 1, 1998 (Commencement of Operations) to
April 30, 1999.
23
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at April 30, 1999, as
computed on a federal income tax basis, are as follows:
Aggregate cost $111,034,319
================================================================================
Gross unrealized appreciation $ 376,448
Gross unrealized depreciation (1,369,422)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (992,974)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Funds collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific fund
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the period November 1, 1998
(Commencement of Operations) to April 30, 1999, the commitment fee allocated to
the Portfolio was $120. 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
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 SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF INVESTMENT MANAGER
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
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
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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
CitiFunds are made available by CFBDS, Inc. as distributor.
c 1999 Citicorp [Logo] Printed on recycled paper CFS/INI/499
