SEMI-ANNUAL REPORT o JUNE 30, 1999
CITIFUNDS(sm)
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Short-Term
U.S. Government
Income Portfolio
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INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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BONDS
<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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Fund Performance 4
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CITIFUNDS SHORT-TERM U.S. GOVERNMENT 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 9
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GOVERNMENT INCOME PORTFOLIO
Portfolio of Investments 13
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Statement of Assets and Liabilities 14
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Statement of Operations 14
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Statement of Changes in Net Assets 15
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Financial Highlights 15
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Notes to Financial Statements 16
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
This semi-annual report covers the period from January 1, 1999 through June
30, 1999, for the CitiFundsSM Short-Term U.S. Government 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.
The past six months have been a study in contrasts for investor sentiment and
the financial markets. When the period began, investors were primarily concerned
that economic weakness overseas might constrain growth in the United States. As
a result, they favored bonds and stocks with predictable earnings growth. When
the period ended, investors were mainly worried that the economy might be
growing too fast, potentially awakening long-dormant inflation pressures. In
this environment, they avoided bonds and favored stocks that are sensitive to
changes in the economic cycle.
Thank you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
- ---------------------
Philip W. Coolidge
President
July 23, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE FIRST SIX MONTHS OF 1999 EXPERIENCED STRONGER-THAN-EXPECTED ECONOMIC
GROWTH BOTH IN THE UNITED STATES AND IN KEY OVERSEAS MARKETS, INCLUDING JAPAN,
SOUTHEAST ASIA AND LATIN AMERICA. As a result, fears regarding the potentially
adverse effects of overseas recessions on U.S. economic growth, which prevailed
at the end of 1998, quickly faded. Instead, investors grew concerned that global
economic strength might become unsustainable, triggering a reacceleration of
inflation. To forestall a potential resurgence of inflation, the Federal Reserve
Board ("Fed") increased key short-term interest rates modestly on June 30,
effectively offsetting a portion of last fall's rate cuts.
IN THIS ENVIRONMENT, PRICES OF U.S. TREASURY SECURITIES DECLINED SHARPLY. IN
FACT, TREASURIES DECLINED MORE SHARPLY THAN VIRTUALLY ANY OTHER SECTOR OF THE
U.S. FIXED-INCOME MARKETPLACE. That's partly because these direct obligations of
the federal government performed extremely well in the second half of 1998, when
domestic and foreign investors flocked to them in droves as a safe haven amid
global economic turmoil. When it became clearer in 1999 that the world's
economic crisis was abating, investors became more comfortable with riskier,
higher yielding investments, and they shifted assets away from U.S. Treasury
securities. As a result, 30-year U.S. Treasury bonds declined over the first six
months of 1999.
During the first three months of the reporting period, mortgage-backed
securities received some of the assets flowing out of the U.S. Treasury market.
It is also partly because modestly higher interest rates helped alleviate the
likelihood that homeowners might refinance their mortgages. When mortgage
prepayments occur at a higher-than-expected rate, principal may be returned to
investors and must be reinvested at a lower yield than it had earned previously.
In the second quarter, while higher interest rates hurt the performance of
mortgage-backed securities, they continued to offer more attractive returns than
U.S. Treasuries.
IN THIS ENVIRONMENT, MANAGEMENT SHIFTED ASSETS BETWEEN THE DIFFERENT SECTORS
OF THE U.S. GOVERNMENT SECURITIES MARKET IN AN ATTEMPT TO CAPTURE HIGHER YIELDS
WHENEVER POSSIBLE. Accordingly, as of June 30, approximately 20% of the
Short-Term U.S. Government Income Portfolio was allocated to mortgage-backed
securities, 64% of the Portfolio was composed of U.S. Treasury securities, and
16% constituted cash awaiting reinvestment.
Within the U.S. Treasury securities portion of the portfolio, the Portfolio's
manager emphasized "off the run" (OTR) Treasuries. OTR Treasuries are securities
that were issued before the most recent Treasury auction. Because many investors
prefer to invest in the most recent issues, OTR Treasuries are considered less
liquid and, therefore, they tend to offer higher yields. Over the past six
months, OTR Treasuries provided higher total returns than current issues as the
yield differences between the two types of bonds narrowed, which helped the
Portfolio's performance.
On the other hand, the Portfolio's slightly long duration, a measure of
sensitivity to changing interest rates, constrained returns modestly. Because
the longer term securities within the Portfolio's range provided higher yields
than shorter
2
<PAGE>
term securities, it maintained some positions in bonds with maturities of three
years or more. These longer term holdings effectively extended the Portfolio's
average duration toward the long end of neutral. When short-term interest rates
rose, this position limited the Portfolio's ability to quickly purchase higher
yielding securities as they became available.
According to the portfolio managers, the outlook for the short-term U.S.
government securities market is cautiously optimistic. Their forecast calls for
a continuation of positive growth and low inflation. While it is possible that
the Fed may continue to raise short-term interest rates modestly to prevent
inflation pressures from taking root, management believes that the fixed-income
markets have already incorporated an incrementally tighter monetary policy into
bond prices.
Accordingly, they intend to maintain the Portfolio's current sector
allocation and duration management strategies until prevailing economic
conditions change. That means that management will continue to emphasize higher
yielding U.S. government securities, including mortgage-backed securities and
OTR Treasuries. Also, they expect to maintain the Portfolio's neutral-to-long
average duration, potentially enabling the Portfolio to maintain higher yields
longer if interest rates decline. Of course, if conditions change, the manager
is prepared to reposition the Portfolio to attempt to capture the opportunities
that the future may present.
FUND FACTS
FUND OBJECTIVE
To generate current income and preserve the value of its shareholders'
investment.
INVESTMENT ADVISER,
GOVERNMENT INCOME PORTFOLIO
Citibank, N.A.
COMMENCEMENT OF OPERATIONS
September 8, 1986
NET ASSETS AS OF 06/30/99
$37.9 million
DIVIDENDS
Paid monthly, if any
CAPITAL GAINS
Paid semi-annually, if any
BENCHMARKS
o Lipper Short U.S. Government Funds Average
o Lehman Brothers 1-3 Year U.S. Government Index*
o The Lehman Brothers 1-3 year U.S. Government Index is a broad measure of the
performance of short-term government bonds.
3
<PAGE>
FUND Performance
TOTAL RETURNS
<TABLE>
<CAPTION>
ALL PERIODS ENDED JUNE 30, 1999 SIX ONE FIVE TEN
(UNAUDITED) MONTHS** YEAR YEARS* YEARS*
=====================================================================================================
<S> <C> <C> <C> <C>
CitiFunds Short-Term U.S. Government Income Portfolio
without sales charge 0.58% 4.10% 5.55% 6.26%
Lipper Short U.S. Government Funds Average 1.02% 4.17% 5.54% 5.97%
Lehman Brothers 1-3 Year U.S. Government Index 1.15% 5.05% 6.31% 6.83%
CitiFunds Short-Term U.S. Government Income Portfolio
with a maximum sales charge of 1.50% (0.93)% 2.54% 5.23% 6.10%
</TABLE>
* Average Annual Total Return
** Not Annualized
30-Day SEC Yield 4.86%
Income Dividends Per Share $0.216
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made ten years ago would have grown to $18,072
with sales charge (as of 6/30/99). The graph shows how the Fund compares to its
benchmarks over the same period.
[The following table represents a chart in the printed material]
Lipper Short Lehman 1-3 Year CitiFunds Short-Term
U.S. Government U.S. Government U.S. Government
Date Income Funds Avg. Index (unmanaged) Income Portfolio
- --------------------------------------------------------------------------------
6/30/89 10000 10000 9850
7/31/89 10142 10147 10039
8/31/89 10070 10088 9850
9/30/89 10119 10146 9878
10/31/89 10283 10304 10156
11/30/89 10369 10397 10246
12/31/89 10409 10437 10262
1/31/90 10393 10448 10081
2/28/90 10441 10504 10092
3/31/90 10473 10535 10078
4/30/90 10484 10560 9915
5/31/90 10640 10722 10244
6/30/90 10749 10835 10419
7/31/90 10875 10966 10568
8/31/90 10892 11006 10415
9/30/90 10973 11092 10497
10/31/90 11085 11215 10638
11/30/90 11206 11324 10880
12/31/90 11332 11457 11073
1/31/91 11435 11565 11198
2/28/91 11500 11639 11262
3/31/91 11564 11717 11306
4/30/91 11670 11829 11419
5/31/91 11736 11900 11477
6/30/91 11761 11944 11429
7/31/91 11875 12047 11603
8/31/91 12043 12212 11878
9/30/91 12182 12341 12168
10/31/91 12307 12475 12282
11/30/91 12423 12603 12348
12/31/91 12632 12794 12600
1/31/92 12558 12777 12515
2/29/92 12525 12815 12574
3/31/92 12452 12811 12553
4/30/92 12554 12928 12626
5/31/92 12686 13048 12791
6/30/92 12818 13179 12925
7/31/92 12972 13331 13090
8/31/92 13078 13439 13177
9/30/92 13186 13565 13294
10/31/92 13083 13487 13169
11/30/92 13062 13467 13153
12/31/92 13187 13593 13300
1/31/93 13353 13735 13477
2/28/93 13480 13844 13610
3/31/93 13523 13887 13658
4/30/93 13599 13972 13742
5/31/93 13583 13938 13698
6/30/93 13709 14042 13849
7/31/93 13746 14072 13843
8/31/93 13881 14189 14045
9/30/93 13920 14234 14102
10/31/93 13943 14266 14133
11/30/93 13903 14268 14063
12/31/93 13953 14325 14109
1/31/94 14048 14414 14194
2/28/94 13931 14327 14037
3/31/94 13788 14254 13872
4/30/94 13690 14200 13768
5/31/94 13665 14219 13796
6/30/94 13664 14255 13794
7/31/94 13775 14383 13938
8/31/94 13806 14431 13966
9/30/94 13758 14398 13891
10/31/94 13766 14431 13905
11/30/94 13711 14371 13829
12/31/94 13741 14399 13867
1/31/95 13912 14595 14075
2/28/95 14111 14793 14269
3/31/95 14184 14877 14343
4/30/95 14306 15010 14492
5/31/95 14588 15266 14825
6/30/95 14661 15348 14900
7/31/95 14678 15409 14883
8/31/95 14785 15501 14990
9/30/95 14870 15577 15066
10/31/95 15002 15706 15188
11/30/95 15146 15840 15343
12/31/95 15272 15959 15459
1/31/96 15382 16094 15568
2/29/96 15311 16032 15440
3/31/96 15293 16020 15374
4/30/96 15296 16036 15341
5/31/96 15314 16072 15339
6/30/96 15417 16188 15434
7/31/96 15468 16252 15485
8/31/96 15509 16312 15518
9/30/96 15643 16460 15651
10/31/96 15807 16646 15833
11/30/96 15930 16769 15951
12/31/96 15925 16773 15926
1/31/97 16000 16853 16011
2/28/97 16042 16894 16046
3/31/97 16013 16880 15997
4/30/97 16130 17019 16134
5/31/97 16225 17138 16238
6/30/97 16311 17256 16342
7/31/97 16481 17444 16532
8/31/97 16487 17461 16534
9/30/97 16601 17594 16639
10/31/97 16717 17724 16780
11/30/97 16754 17769 16799
12/31/97 16836 17888 16899
1/31/98 16979 18059 17076
2/28/98 16991 18076 17078
3/31/98 17049 18146 17133
4/30/98 17115 18233 17203
5/31/98 17203 18330 17290
6/30/98 17278 18425 17360
7/31/98 17348 18512 17431
8/31/98 17524 18738 17647
9/30/98 17738 18991 17882
10/31/98 17768 19084 17934
11/30/98 17765 19065 17914
12/31/98 17816 19137 17968
1/31/99 17902 19210 18016
2/28/99 17832 19123 17916
3/31/99 17937 19253 18020
4/30/99 18007 19313 18087
5/31/99 17991 19300 18042
6/30/99 17998 19356 18072
The graph includes the initial 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 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. The maximum sales charge of 1.50% went into effect on January 4, 1999.
Investors may not invest directly in an index.
4
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investment in Government Income Portfolio, at value (Note 1A) $37,993,232
Receivable for shares of beneficial interest sold 11,667
Receivable from the Administrator 24,541
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Total assets 38,029,440
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LIABILITIES:
Payable for shares of beneficial interest repurchased 52,900
Payable to affiliates--Shareholder Servicing Agents' fees (Note 2B) 7,895
Accrued expenses and other liabilities 73,756
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Total liabilities 134,551
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Net Assets for 3,958,326 shares of beneficial interest outstanding $37,894,889
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $41,083,628
Accumulated net realized loss (2,367,683)
Unrealized depreciation (888,756)
Undistributed net investment income 67,700
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Total $37,894,889
================================================================================
COMPUTATION OF:
Net Asset Value, per share $9.57
Offering Price per share ($9.57 / 0.985) $9.72*
================================================================================
* Based upon single purchases of less than $50,000
5
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest Income from Government Income Portfolio $1,268,248
Allocated Expenses from Government Income Portfolio (77,178)
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$ 1,191,070
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EXPENSES:
Administrative fees (Note 2A) $ 54,771
Shareholder Servicing Agents fees (Note 2B) 54,771
Distribution fees (Note 3) 32,862
Shareholder reports 14,998
Custody and fund accounting fees 9,956
Audit fees 8,100
Trustee fees 5,686
Transfer agent fees 3,000
Legal fees 2,102
Miscellaneous 3,573
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Total expenses 189,819
Less aggregate amount waived by Administrator
and Distributor (Notes 2A and 3) (87,633)
Less Expenses Assumed by the Administrator (Note 6) (3,598)
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Net expenses 98,588
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Net investment income 1,092,482
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NET REALIZED AND UNREALIZED GAIN FROM
GOVERNMENT INCOME PORTFOLIO:
Net realized gain 25,012
Unrealized depreciation of investments (791,693)
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Net realized and unrealized loss from
Government Income Portfolio (766,681)
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 325,801
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(Unaudited) 1998
==========================================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 1,092,482 $ 1,448,972
Net realized gain 25,012 230,601
Unrealized appreciation (depreciation) of investments (791,693) 40,666
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 325,801 1,720,239
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (1,039,439) (1,442,038)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares 3,557,454 36,423,583
Net asset value of shares issued to shareholders
from reinvestment of dividends 1,000,707 1,435,786
Cost of shares repurchased (13,983,731) (10,340,734)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from transactions
in shares of beneficial interest (9,425,570) 27,518,635
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NET INCREASE (DECREASE) IN NET ASSETS (10,139,208) 27,796,836
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 48,034,097 20,237,261
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End of period (including undistributed
net investment income of $67,700 and
$14,657, respectively) $ 37,894,889 $ 48,034,097
==========================================================================================================
See notes to financial statements
</TABLE>
7
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994+
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $9.73 $9.61 $9.55 $9.78 $9.28 $9.91
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.230 0.473 0.504 0.516 0.543 0.466
Net realized and
unrealized gain (loss) (0.174) 0.121 0.064 (0.232) 0.500 (0.635)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations 0.056 0.594 0.568 0.284 1.043 (0.169)
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.216) (0.474) (0.508) (0.514) (0.543) (0.461)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.216) (0.474) (0.508) (0.514) (0.543) (0.461)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
end of period $9.57 $9.73 $9.61 $9.55 $9.78 $9.28
==================================================================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000's omitted) $37,895 $48,034 $20,237 $26,744 $35,525 $52,933
Ratio of expenses to
average net assets (A) 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment
income to average
net assets 4.99%* 4.98% 5.20% 5.31% 5.38% 4.72%
Portfolio turnover (B) -- -- -- -- -- 22%
Total return 0.58%** 6.33% 6.11% 3.02% 11.48% (1.72)%
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 $0.207 $0.413 $0.442 $0.460 $0.499 $0.421
RATIOS:
Expenses to average
net assets (A) 1.27%* 1.42% 1.43% 1.38% 1.23% 1.26%
Net investment income to
average net assets 4.52%* 4.36% 4.57% 4.73% 4.95% 4.26%
=================================================================================================================================
</TABLE>
(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.
* Annualized
** Not Annualized
See notes to financial statements
8
<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 (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. The value of such investment reflects the Fund's proportionate interest
(60.6% at June 30, 1999) in the net assets of the Portfolio. CFBDS, Inc.
("CFBDS") acts as the Fund's Administrator and Distributor. Citibank also serves
as Sub-Administrator and makes Fund shares available to customers as Shareholder
Servicing Agent. Citibank is a wholly-owned subsidiary of Citicorp, which in
turn, is a wholly-owned subsidiary of Citigroup Inc.
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, 1998, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,428,993, of which $1,551,556 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
9
<PAGE>
CITIFUNDS SHORT TERM U.S. GOVERNMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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.
F. 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 $54,771, all of which was voluntarily waived for
the six months ended June 30, 1999. Citibank acts as Sub-Administrator and
performs duties and receives compensation from CFBDS from time to time as agreed
to by CFBDS and Citibank. The Fund pays no compensation directly to any Trustee
or any offi-
10
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
cer 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 $54,771, for the six months ended June 30,
1999.
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 $32,862, all
of which was voluntarily waived for the six months ended June 30, 1999. 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, 1999.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the six months ended June 30, 1999 aggregated $3,346,024 and
$12,643,515, respectively.
11
<PAGE>
CITIFUNDS SHORT TERM U.S. GOVERNMENT 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
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(Unaudited) 1998
================================================================================
Shares sold 368,038 3,752,548
Shares issued to shareholders
from reinvestment of dividends 103,797 148,353
Shares repurchased (1,450,610) (1,068,844)
- --------------------------------------------------------------------------------
Net increase (decrease) (978,775) 2,832,057
================================================================================
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, 1999, which amounted to
$3,598.
12
<PAGE>
GOVERNMENT INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 1999
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 19.2%
- --------------------------------------------------------------------------------
6.50%, 2009 $ 168 $ 166,989
6.50%, 2011 3,089 3,062,557
6.50%, 2019 610 612,194
7.00%, 2008 735 733,361
7.00%, 2009 2,000 2,015,612
7.00%, 2013 4,568 4,605,609
7.25%, 2022 194 194,765
8.00%, 2006 100 102,354
8.00%, 2007 112 115,555
8.00%, 2017 116 119,366
8.00%, 2021 127 131,446
8.00%, 2022 75 77,731
9.50%, 2016 1 1,140
9.50%, 2017 35 37,850
9.50%, 2018 23 25,397
9.50%, 2019 25 27,618
9.50%, 2020 27 28,601
----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION 12,058,145
----------
U.S. & OTHER GOVERNMENT
OBLIGATIONS -- 64.2%
- --------------------------------------------------------------------------------
Israel State U.S. Government
Guaranteed Notes,
5.70% due 2/15/03 5,000 4,915,750
----------
United States Treasury Notes,
6.875% due 3/31/00 4,500 4,554,135
5.375% due 6/30/00 5,000 5,003,100
4.625% due 11/30/00 4,500 4,451,490
4.875% due 3/31/01 2,000 1,979,680
5.00% due 4/30/01 2,000 1,983,120
5.625% due 11/30/00 3,500 3,509,310
6.50% due 08/31/01 5,000 5,093,750
6.625% due 04/30/02 8,500 8,725,760
----------
35,300,345
----------
TOTAL U.S. & OTHER
GOVERNMENT OBLIGATIONS 40,216,095
----------
SHORT-TERM OBLIGATIONS -- 15.8%
- --------------------------------------------------------------------------------
Dresdner Bank Repurchase Agreement
4.60% due 7/01/99
proceeds at maturity
$5,000,639 (collateralized
by $ 4,930,000 U.S.
Treasury Note
6.25% due 2/15/07,
valued at $5,043,236) $ 5,000,000
-----------
Westdeutsche Landesbank
Repurchase Agreement
4.75% due 7/01/99 proceeds
at maturity $4,866,642
(collateralized by $ 4,630,000
U.S. Treasury Note 7.875%
due 8/15/01, valued at
$4,963,473) 4,866,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
AT AMORTIZED COST 9,866,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$63,298,321) 99.2% 62,140,240
OTHER ASSETS
LESS LIABILITIES 0.8 518,513
----- -----------
NET ASSETS 100.0% $62,658,753
===== ===========
See notes to financial statements
13
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (Unaudited)
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $63,298,321) $62,140,240
Cash 788
Interest receivable 535,740
- --------------------------------------------------------------------------------
Total assets 62,676,768
- --------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates-Investment advisory fees (Note 2) 18,015
- --------------------------------------------------------------------------------
NET ASSETS $62,658,753
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $62,658,753
================================================================================
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME: (Note 1B): $ 1,867,131
EXPENSES:
Investment advisory fees (Note 2) $ 113,679
Administrative fees (Note 3) 16,240
- --------------------------------------------------------------------------------
Total expenses 129,919
Less aggregate amount waived by the Administrator
(Note 3) (16,240)
- --------------------------------------------------------------------------------
Net expenses 113,679
- --------------------------------------------------------------------------------
Net investment income 1,753,452
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 41,850
Unrealized depreciation of investments (1,173,575)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1,131,725)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 621,727
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(Unaudited) 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 1,753,452 $ 3,701,589
Net realized gain on investment transactions 41,850 495,657
Unrealized appreciation (depreciation) of
investments (1,173,575) 134,572
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 621,727 4,331,818
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 12,457,544 48,935,387
Value of withdrawals (34,567,302) (30,418,418)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (22,109,758) 18,516,969
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (21,488,031) 22,848,787
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 84,146,784 61,297,997
- --------------------------------------------------------------------------------
End of period $62,658,753 $84,146,784
================================================================================
GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1994
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
JUNE 30, 1999 ----------------------------------- DECEMBER 31,
(Unaudited) 1998 1997 1996 1995 1994
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $62,659 $84,147 $61,298 $53,499 $53,145 $55,673
Ratio of expenses to
average net assets 0.35%* 0.35% 0.35% 0.35% 0.36% 0.43%*
Ratio of net investment income
to average net assets 5.40%* 5.49% 5.65% 5.75% 5.80% 5,27%*
Portfolio turnover 60% 288% 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%* 0.40% 0.41% 0.40% 0.40% 0.44%*
Net investment income
to average net assets 5.35%* 5.44% 5.59% 5.70% 5.76%* 5.26%*
==========================================================================================================
</TABLE>
*Annualized
See notes to financial statements
15
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES The 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, which in turn, is a wholly
owned subsidiary of Citigroup, Inc.
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.
16
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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.
17
<PAGE>
GOVERNMENT INCOME PORTFOLIO
Notes to Financial StatementS (Unaudited)
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, 1999.
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 $113,679,
for the six months ended June 30, 1999. 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 $16,240, all of which was voluntarily waived,
for the six months ended June 30, 1999. Citibank acts as Sub-Administrator and
performs certain duties and receives such compensation from SFG 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 $34,448,850 and
$56,215,871, respectively, for the six months ended June 30, 1999.
5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 1999, as
computed on a federal income tax basis, are as follows:
Aggregate cost $63,298,321
===============================================================================
Gross unrealized appreciation $ 27,259
Gross unrealized depreciation (1,185,340)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(1,158,081)
===============================================================================
18
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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 various other Portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on borrowings, if any, is charged to the specific Portfolio
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the six months ended June 30, 1999,
the commitment fee allocated to the Portfolio was $83. Since the line of credit
was established, there have been no borrowings.
19
<PAGE>
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<PAGE>
TRUSTEES AND OFFICERS
C. OscarMorong, 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 ADMINISTRATOR AND DISTRIBUTOR
** AFFILIATED PERSON OF INVESTMENT ADVISER
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
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 R Printed on recycled paper CFS/USG/699
