ANNUAL REPORT o OCTOBER 31, 1999
CITIFUNDS(SM)
- --------------------
INTERMEDIATE
INCOME PORTFOLIO
- ----------------------------------------------------------------------
B
O
N
D
S
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INVESTMENT PRODUCTS;
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
................................................................................
Portfolio Environment and Outlook 2
................................................................................
Fund Facts 4
................................................................................
Portfolio Highlights 4
................................................................................
Fund Performance 5
................................................................................
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Statement of Assets and Liabilities 6
................................................................................
Statement of Operations 7
................................................................................
Statement of Changes in Net Assets 8
................................................................................
Financial Highlights 9
................................................................................
Notes to Financial Statements 11
................................................................................
Independent Auditors' Report 15
................................................................................
U.S. FIXED INCOME PORTFOLIO
Portfolio of Investments 16
................................................................................
Statement of Assets and Liabilities 19
................................................................................
Statement of Operations 19
................................................................................
Statement of Changes in Net Assets 20
................................................................................
Financial Highlights 20
................................................................................
Notes to Financial Statements 21
................................................................................
Independent Auditors' Report 25
................................................................................
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Fixed-income securities had a difficult time during the 12-month reporting
period ended October 31, 1999 largely due to strong economic growth in both the
United States and overseas, which led to resurgent inflation fears and higher
U.S. interest rates. Because bond prices generally decline when interest rates
rise, there was a negative impact on the value of many fixed-income investments
which negatively impacted the Fund during its fiscal year.
Throughout the reporting period, the CitiFunds' investment adviser, Citibank,
N.A., continued to manage CitiFunds Intermediate Income Portfolio with the goal
of achieving its investment objectives of providing as high a level of current
income and preserving the value of its Shareholders' investment.
This report reviews the Fund's investment activities and performance during
the reporting period and provides a summary of the adviser's perspective on and
outlook for the U.S. bond market. On behalf of the Board of Trustees, I want to
thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
November 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
AFTER SEVERAL YEARS OF DECLINING YIELDS AND HIGHER PRICES, U.S. BOND MARKET
PRICES GENERALLY DECLINED OVER THE PAST year. While the economic and market
conditions that fueled the bond market's previous rise have remained largely
intact-- including positive economic growth characterized by low inflation--many
investors have become concerned that inflationary pressures might resurface. In
fact, in an attempt to forestall a potential reacceleration of inflation, the
Federal Reserve Board (the "Fed") raised interest rates twice during the summer
of 1999.
These economic conditions stand in stark contrast to the bond market
conditions that prevailed when the Portfolio's reporting period began. In
November 1998, the Fed completed a series of interest rate cuts that were
intended to stimulate global economic growth, which was threatened by the spread
of an international currency and credit crisis, and to help insulate the U.S.
economy from the adverse effects of a global economic slowdown. The Fed's
strategy was apparently effective, because many overseas economies began to
recover in 1999, and the U.S. economy continued to grow.
THE BOND MARKET EXPERIENCED HEIGHTENED LEVELS OF VOLATILITY, PARTICULARLY
DURING THE THIRD QUARTER OF 1999, IN REACTION TO INCREASING INFLATIONARY
PRESSURES. In the opinion of management, this higher volatility reflected
investor confusion over the direction and magnitude of changes in monetary
policy and their effects on interest rates and bond yields. While a dramatic
increase in the inflation rate did not materialize during the reporting period,
investors were increasingly concerned by extremely low levels of unemployment,
robust consumer spending and a weakening U.S. dollar relative to other major
currencies.
The higher yielding sectors of the bond market such as corporate bonds were
the most volatile. The yield differences between U.S. Treasury securities and
higher yielding bonds widened sharply, approaching the levels they were at
during the liquidity crisis that hit the fixed-income markets after the
near-failure of major hedge funds during the summer of 1998. To some degree,
higher yields were also related to supply-and-demand factors as investors
expected a surge of new issuance in advance of year-end Y2K concerns.
In this environment, CitiFunds Intermediate Income Portfolio focused on
capturing the higher yield potential provided by corporate and asset-backed
securities. The Fund's management took advantage of the market's volatility to
increase the portfolio's income stream whenever attractive opportunities arose.
As a result, at the end of the reporting period, the Fund's holdings reflected
an emphasis on corporate, mortgage-backed and asset-backed securities, and
relatively light positions in lower yielding U.S. Treasury and government agency
bonds.
2
<PAGE>
As part of management's investment strategy, the portfolio's average duration
(Duration is a measure of a bond's sensitivity to changing interest rates.) was
maintained at around five years, considered to be in the neutral range. In
management's view, this duration creates the ability to lock in higher yields
for a reasonable period while providing enough flexibility to upgrade the
portfolio's credit quality as opportunities arise. Throughout the reporting
period, the managers were careful to maintain the portfolio's investment grade
credit quality. As of October 31, 1999, the portfolio's average credit rating
was AA+, and approximately 75% of the portfolio's holdings were AAA-rated by
nationally recognized securities rating organizations.
GOING FORWARD, THE FUND'S MANAGEMENT TEAM EXPECTS HIGHER MARKET VOLATILITY TO
CONTINUE THROUGH THE END OF 1999. Management also believes that investor
uncertainty regarding inflation and interest rates may be compounded by
Y2K-related concerns as the year ends. And while no guarantees can be made, over
the longer term, management remains convinced that many high-quality, higher
yielding bonds represent bargains at current prices consistent with recessionary
conditions, even though there is no recession in sight.
3
<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 10/31/99 BENCHMARKS
Class A shares o Lipper Intermediate Investment
$52.0 million Grade Funds Average*
Class B shares o Lehman Aggregate Bond Index**
$2.3 million
* The Lipper Intermediate Investment Grade Funds Average reflects the
performance (excluding sales charges) of mutual funds with similar objectives.
**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 OCTOBER 31, 1999
(Table Below Represents Pie Chart in its Printed Form)
Preferred Stock 1%
*Short-Term (15%)
Asset-Backed Securities 28%
Mortgage Obligations 32%
Corporate Bonds 33%
U.S. Treasury Issues 32%
*Includes cash and net other assets
4
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FUND PERFORMANCE
TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
ONE FIVE 6/25/93
ALL PERIODS ENDING OCTOBER 31, 1999 YEAR YEARS* INCEPTION*
====================================================================================
<S> <C> <C> <C>
CitiFunds Intermediate Income Portfolio (Class A)
without sales charge (1.61)% 6.72% 4.91%
Lipper Intermediate Investment Grade Funds Average (0.07)% 6.94% 4.95%+
Lehman Aggregate Bond Index 0.53% 7.94% 6.11%+
CitiFunds Intermediate Income Portfolio (Class A)
with a maximum sales charge of 4.50% (6.04)% 5.74% 4.15%
CitiFunds Intermediate Income Portfolio (Class B)
without deferred sales charge -- -- (2.35)%#**
Lipper Intermediate Investment Grade Funds Average -- -- (0.97)%++**
Lehman Aggregate Bond Index -- -- (0.33)%++**
CitiFunds Intermediate Income Portfolio (Class B)
with a maximum deferred sales charge of 4.50% -- -- (6.75)%#**
</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 5.53%
30-DAY SEC YIELD CLASS B 5.05%
Growth of a $10,000 Investment A $10,000 investment in the Fund made on
inception date would have grown to $12,950 with sales charge (as of 10/31/99).
The graph shows how this compares to its benchmarks over the same period.
(Table below represents chart in its printed Form)
6/30/93 9579 10000 10000
7/31/93 9620 10042 10057
8/31/93 9860 10228 10233
9/30/93 9937 10268 10261
10/31/93 9947 10301 10299
11/30/93 9785 10209 10211
12/31/93 9835 10257 10266
1/31/94 9975 10387 10405
2/28/94 9755 10202 10224
3/31/94 9519 9980 9971
4/30/94 9424 9890 9891
5/31/94 9398 9875 9890
6/30/94 9368 9856 9869
7/31/94 9527 10004 10065
8/31/94 9553 10024 10077
9/30/94 9393 9911 9929
10/31/94 9357 9896 9920
11/30/94 9321 9867 9898
12/31/94 9395 9914 9967
1/31/95 9570 10072 10164
2/28/95 9788 10281 10406
3/31/95 9857 10345 10469
4/30/95 9969 10478 10616
5/31/95 10438 10848 11027
6/30/95 10497 10916 11107
7/31/95 10448 10887 11083
8/31/95 10542 11009 11217
9/30/95 10657 11106 11326
10/31/95 10695 11244 11473
11/30/95 10801 11401 11645
12/31/95 10941 11546 11808
1/31/96 10991 11622 11886
2/29/96 10772 11423 11679
3/31/96 10687 11345 11597
4/30/96 10613 11276 11532
5/31/96 10584 11256 11509
6/30/96 10739 11384 11664
7/31/96 10756 11410 11695
8/31/96 10725 11401 11675
9/30/96 10928 11587 11878
10/31/96 11167 11821 12142
6/30/93 9579 10000 10000
7/31/93 9620 10042 10057
8/31/93 9860 10228 10233
9/30/93 9937 10268 10261
10/31/93 9947 10301 10299
11/30/93 9785 10209 10211
12/31/93 9835 10257 10266
1/31/94 9975 10387 10405
2/28/94 9755 10202 10224
3/31/94 9519 9980 9971
4/30/94 9424 9890 9891
5/31/94 9398 9875 9890
6/30/94 9368 9856 9869
7/31/94 9527 10004 10065
8/31/94 9553 10024 10077
9/30/94 9393 9911 9929
10/31/94 9357 9896
11/30/96 11360 12016 12350
12/31/96 11239 11910 12235
1/31/97 11292 11805 12273
2/28/97 11320 11829 12303
3/31/97 11181 11705 12167
4/30/97 11354 11857 12349
5/31/97 11444 11959 12467
6/30/97 11570 12092 12615
7/31/97 11858 12403 12956
8/31/97 11743 12294 12846
9/30/97 11910 12465 13034
10/31/97 12117 12522 13223
11/30/97 12111 12557 13284
12/31/97 12236 12670 13418
1/31/98 12433 12833 13590
2/28/98 12402 12815 13580
3/31/98 12448 12861 13626
4/30/98 12490 12916 13697
5/31/98 12622 13031 13827
6/30/98 12729 13125 13944
7/31/98 12733 13147 13974
8/31/98 12972 13307 14201
9/30/98 13250 13601 14534
10/31/98 13162 13502 14457
11/30/98 13180 13564 14539
12/31/98 13223 13609 14583
1/31/99 13299 13696 14686
2/28/99 12975 13441 14429
3/31/99 13064 13538 14509
4/30/99 13086 13579 14588
5/31/99 12961 13438 14460
6/30/99 12890 13388 14414
7/31/99 12803 13450 14352
8/31/99 12771 13428 14345
9/30/99 12945 13562 14511
10/31/99 12950 13580 14565
CitiFund Intermediate Income Portfolio (Class A)
Lipper Intermediate Investment Grade Fund 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 at any time. 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.
5
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
==============================================================================
ASSETS:
Investment in U.S. Fixed Income Portfolio at value (Note 1A) $54,492,054
Receivable from Sub-Administrator 58,333
Receivable for shares of beneficial interest sold 16,614
- ------------------------------------------------------------------------------
Total assets 54,567,001
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 80,251
Dividends payable 54,085
Accrued expenses and other liabilities 61,714
- ------------------------------------------------------------------------------
Total liabilities 196,050
- ------------------------------------------------------------------------------
NET ASSETS $54,370,951
==============================================================================
NET ASSETS CONSIST OF:
Paid-in capital $59,984,227
Accumulated net realized loss (3,519,659)
Unrealized depreciation (2,271,598)
Undistributed net investment income 177,981
- ------------------------------------------------------------------------------
Total $54,370,951
==============================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($52,024,571/5,546,900 shares outstanding) $9.38
Offering price per share ($9.38 O 0.955) $9.82*
==============================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($2,346,380/249,624 shares outstanding) $9.40**
==============================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
6
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (NOTE 1B):
Interest Income from U.S. Fixed Income Portfolio $ 4,525,382
Dividend Income from U.S. Fixed Income Portfolio 56,490
Allocated Expenses from U.S. Fixed Income Portfolio (300,301)
- --------------------------------------------------------------------------------
$ 4,281,571
EXPENSES:
Management fees (Note 2) 262,820
Service fees Class A (Note 3) 182,930
Service fees Class B (Note 3) 14,398
Transfer agent fees 52,199
Shareholder reports 46,984
Audit fees 38,759
Legal fees 36,484
Custody and fund accounting fees 30,902
Trustees fees 12,095
Other 28,689
- --------------------------------------------------------------------------------
Total expenses 706,260
Less expenses assumed by the Sub-Administrator (Note 6) (58,333)
Less aggregate amounts waived by the Manager (Note 2) (262,820)
- --------------------------------------------------------------------------------
Net expenses 385,107
- --------------------------------------------------------------------------------
Net investment income 3,896,464
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM U.S. FIXED INCOME PORTFOLIO:
Net realized loss from investment transactions (1,413,241)
Net realized gain on futures transactions 137,758
Unrealized depreciation of
investments and futures contracts (3,954,983)
- --------------------------------------------------------------------------------
Net realized and unrealized loss from
U.S. Fixed Income Portfolio (5,230,466)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,334,002)
================================================================================
See notes to financial statements
7
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
YEAR ENDED OCTOBER 31, YEAR ENDED
OCTOBER 31, 1998 DECEMBER 31,
1999 (NOTE 1F) 1997
================================================================================
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 3,896,464 $ 2,071,831 $ 2,329,594
Net realized gain (loss) (1,275,483) 743,318 272,468
Unrealized appreciation (depreciation) (3,954,983) 662,088 649,983
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,334,002) 3,477,237 3,252,045
- --------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income (Class A) (3,638,279) (2,112,415) (2,338,323)
Net Investment Income (Class B) (80,204) -- --
- --------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (3,718,483) (2,112,415) (2,338,323)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (NOTE 5):
CLASS A
Net proceeds from sale of shares 26,451,535 45,904,926 595,327
Net asset value of shares issued to
shareholders from reinvestment of
distributions 3,587,003 2,110,978 2,335,328
Cost of shares repurchased (49,885,122) (9,293,925) (11,061,426)
- --------------------------------------------------------------------------------
Total Class A (19,846,584) 38,721,979 (8,130,771)
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 3,269,414 -- --
Net asset value of shares issued to
shareholders from reinvestment
of distributions 62,923 -- --
Cost of shares repurchased (850,681) -- --
- --------------------------------------------------------------------------------
Total Class B 2,481,656 -- --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest (17,364,928) 38,721,979 (8,130,771)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (22,417,413) 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 of $177,981,
$0 and $26,955, respectively) $ 54,370,951 $ 76,788,364 $ 36,701,563
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
</TABLE>
See notes to financial statements
8
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
TEN
MONTHS
YEAR ENDED
ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
OCTOBER 31, 1998 --------------------------------
1999 (Note 1F) 1997 1996 1995 1994
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $10.00 $ 9.72 $9.48 $9.77 $8.91 $9.88
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.508+ 0.447 0.575 0.54 0.57 0.521
Net Realized and Unrealized
Gain (Loss) on
Investments (0.666) 0.272 0.239 (0.29) 0.86 (0.959)
- --------------------------------------------------------------------------------
Total from operations (0.158) 0.719 0.814 0.25 1.43 (0.438)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.462) (0.439) (0.574) (0.54) (0.57) (0.516)
Net realized gain
on investments -- -- -- -- -- (0.016)
- --------------------------------------------------------------------------------
Total distributions (0.462) (0.439) (0.574) (0.54) (0.57) (0.532)
- --------------------------------------------------------------------------------
Net Asset Value,
end of period $ 9.38 $10.00 $9.72 $9.48 $9.77 $8.91
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $52,025 $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 5.20% 5.30%* 5.92% 5.72% 5.97% 5.52%
Portfolio turnover(B) -- 120% 146% 495% 396% 291%
Total return (1.61)% 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 $0.467+ $0.412 $0.522 $0.50 $0.52 $0.475
RATIOS:
Expenses to average
net assets(A) 1.32% 1.33%* 1.47% 1.39% 1.42% 1.39%
Net investment income to
average net assets 4.78% 4.88%* 5.37% 5.23% 5.45% 5.03%
================================================================================
</TABLE>
* Annualized
** Not Annualized
+ The per share amounts were computed using monthly average of shares during
the period.
(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
9
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
------------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
Net Asset Value,
beginning of period $9.95
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.384
Net realized and unrealized
gain (loss) on investments (0.617)
- --------------------------------------------------------------------------------
Total from operations (0..233)
Less Distributions From:
Net investment income (0.317)
- --------------------------------------------------------------------------------
Net Asset Value,
end of period $9.40
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $2,346
Ratio of expenses to average net assets 1.40%*
Ratio of net investment income to average net assets 4.70%*
Total return (2.35)%**
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 $0.343+
RATIOS:
Expenses to average net assets 1.82%*
Net investment income to average net assets 4.28%*
================================================================================
* Annualized
** Not Annualized
+ The per share amounts were computed using monthly average of shares during
the period.
See notes to financial statements
10
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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 (approximately 18.7% at October 31, 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 fees than Class A, and are subject
to a deferred sales charge if sold within five years of purchase. Class B shares
automatically convert into Class A shares after eight years. Expenses of the
Fund are borne pro-rata by the holders of each class of shares, except that each
class bears expenses unique to that class (including Rule 12b-1 service and
distribution fees applicable to such class), and votes as a class only with
respect to its own Rule 12b-1 plan. Shares of each class would receive their 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 shares. For the period ended
October 31, 1999, CFBDS, acting as the distributor, received $32,584 from sales
of Class A and $11 in deferred sales charges from redemptions of Class B shares.
The financial statements of the Portfolio, including the portfolio of
investments are contained elsewhere in this report and should be read in
conjunction with the Funds' financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. Investment 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.
11
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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 October 31, 1999, the Fund, for federal income tax
purposes, had a capital loss carryover of $3,181,151 of which $1,142,935 will
expire on October 31, 2002, $1,075,574 which will expire on October 31, 2004 and
$962,642 which will expire on October 31, 2007. 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 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. 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.
12
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
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 are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.35% of the Fund's average
daily net assets. The management fee amounted to $262,820 all of which was
voluntarily waived for the year ended October 31, 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 $182,930 for
the year ended October 31, 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 $14,398 for the period
from January 4, 1999 (Commencement of Operations) through October 31, 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 year ended October
31, 1999 aggregated $22,743,775 and $43,457,889, respectively.
13
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (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:
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, 1998 DECEMBER 31,
1999 (NOTE 1F) 1997
================================================================================
CLASS A
Shares sold 2,671,683 4,626,775 62,642
Shares issued to shareholders from
reinvestment of distributions 370,289 214,180 244,817
Shares repurchased (5,171,440) (940,430) (1,162,555)
- --------------------------------------------------------------------------------
Class A Net increase
(decrease) (2,129,468) 3,900,525 (855,096)
================================================================================
CLASS B*
Shares sold 333,168 -- --
Shares issued to shareholders from
reinvestment of distributions 6,600 -- --
Shares repurchased (90,144) -- --
- --------------------------------------------------------------------------------
Class B Net increase 249,624 -- --
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
6. ASSUMPTION OF EXPENSES CFBDs has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the year ended October 31, 1999 which amounted
to $58,333.
14
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS FIXED INCOME TRUST
(THE "TRUST"): CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
CitiFunds Intermediate Income Portfolio (the "Fund"), a series of CitiFunds
Fixed Income Trust, at October 31, 1999, the results of its operations for the
year ended October 31, 1999, the changes in its net assets and the financial
highlights for the period ended October 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of investments owned at
October 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
The financial statements of the Fund for periods prior to November 1, 1998
were audited by other independent auditors whose report dated December 14, 1998
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1999
15
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ---------------------------------------------------------------------
FIXED INCOME -- 113.3%
- ---------------------------------------------------------------------
ASSET BACKED SECURITIES -- 27.6%
- ---------------------------------------------------------------------
Aames Mortgage Trust
6.59% due 6/15/24 $3,389 $ 3,376,054
Aircraft Financial Trust
8.00% due 5/15/24 5,000 4,653,350
Amresco Residential
Securities
6.245% due 4/25/22 3,000 2,978,430
Asset Securitization Corp.,
Series 95
7.10% due 8/13/29 1,879 1,871,715
7.384% due 8/13/29 3,500 3,491,495
Asset Securitization Corp.,
Series 97
6.50% due 2/14/41 2,530 2,510,910
6.85% due 2/14/41 2,425 2,334,184
Commercial Mortgage Corp.
5.80% due 3/15/06 2,076 1,990,617
Contimortgage Home
Equity Loan
6.13% due 3/15/13 4,000 3,968,720
CRIMI Mae Commercial
MortgageTrust
7.00% due 11/02/11 2,000 1,442,188
First Union, Lehman
Brothers
6.479% due 3/18/04 1,390 1,379,226
GE Capital Mortgage
Services, Inc.
5.905% due 10/25/13 2,000 1,972,900
GMAC Commercial
Mortgage Inc.
6.42% due 8/15/08 4,110 3,909,884
6.83% due 12/15/03 3,747 3,757,931
Green Tree Financial Corp.
6.71% due 8/15/29 3,850 3,645,180
8.05% due 10/15/27 5,000 5,101,550
8.41% due 12/01/30 3,000 2,789,610
IMC Home Equity
Loan Trust
6.16% due 5/20/14 2,894 2,881,362
6.34% due 8/20/29 3,600 3,458,628
JP Morgan Commercial
Mortgage Financial Corp.
6.373% due 1/15/30 2,074 2,032,250
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 1,725 1,729,169
Morgan Stanley
Capital Investment Inc.
6.44% due 11/15/02 3,630 3,613,411
6.55% due 12/15/07 1,500 1,444,440
Nissan Auto
Receivables Grantor
6.15% due 2/15/03 1,249 1,243,418
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ---------------------------------------------------------------------
Nomura Asset
Securitization Corp.
8.15% due 3/04/20 $3,000 $ 3,106,950
Norwest Asset
Securitization Corp.
6.75% due 11/25/27 2,000 1,964,560
Norwest Asset
Securitization Corp.
6.75% due 2/25/13 2,008 1,995,782
PNC Mortgage
Securities Corp.
6.392% due 9/25/13 1 1,091
Structured Asset
Securities Corp.
6.79% due 6/12/04 5,921 5,891,973
-----------
80,536,978
-----------
FOREIGN CORPORATIONS -- 1.8%
- ---------------------------------------------------------------------
Quebec Providence CDA
7.50% due 9/15/29 1,935 1,944,288
YPF Sociedad Anonima
7.25% due 3/15/03 3,455 3,346,886
-----------
5,291,174
-----------
DOMESTIC CORPORATIONS -- 26.7%
- ---------------------------------------------------------------------
Ahold Financial U.S.A., Inc.
6.875% due 5/01/29 3,335 2,924,295
American Financial Group Inc.
7.125% due 4/15/09 3,115 2,837,017
Associates Corporation of
North America
6.95% due 11/01/18 3,215 3,052,932
BB&T Corp.
6.375% due 6/30/05 3,270 3,097,246
Bank One Corp.
5.625% due 2/17/04 3,770 3,588,776
Century Telephone
Enterprises Inc.
6.30% due 1/15/08 3,515 3,268,106
Conseco Inc.
6.40% due 6/15/01 2,910 2,850,258
Dayton Hudson Corp.
6.65% due 8/01/28 3,360 2,983,478
Dynegy Inc.
7.45% due 7/15/06 2,895 2,875,259
Equitable Life Assurance
6.95% due 12/01/05 3,275 3,235,700
Ford Motor Co.
6.625% due 10/01/28 2,190 1,948,158
Ford Motor Co.
7.375% due 10/28/09 3,190 3,215,711
Great Lakes Chemical Corp.
7.00% due 7/15/09 3,175 3,081,274
Household Financial Corp.
6.50% due 11/15/08 3,020 2,848,796
16
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
DOMESTIC CORPORATIONS (CONT'D)
- ----------------------------------------------------------------------
Knight Ridder Inc.
6.875% due 3/15/29 $3,285 $ 2,975,395
Lehman Brothers
Holdings, Inc.
7.00% due 5/15/03 3,200 3,184,419
Lehman Brothers
Holdings, Inc.
7.875% due 11/01/09 3,230 3,253,934
MCI Communications Corp.
6.50% due 4/15/10 3,300 3,128,103
Mattel Inc.
6.00% due 7/15/03 3,010 2,873,987
Merita Bank plc
6.50% due 4/01/09 3,615 3,335,307
Morgan Stanley
Dean Witter & Co.
5.625% due 1/20/04 2,900 2,757,900
National Rural Utilities
6.20% due 2/01/08 3,125 2,949,969
Osprey Trust Inc.
8.31% due 1/15/03 2,915 2,923,308
Petroleum Geological
Services
6.625% due 3/30/08 2,760 2,590,950
Popular North America, Inc.
6.875% due 6/15/01 2,415 2,410,619
TPSA Financial
7.75% due 12/10/08 2,050 1,889,227
Wal-Mart Stores Inc.
6.875% due 8/10/09 1,700 1,702,941
-----------
77,783,065
-----------
MORTGAGE OBLIGATIONS -- 31.5%
- ----------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.0%
- ----------------------------------------------------------------------
CMC SECURITIZATION CORP.,
SERIES 97
7.00% DUE 10/25/27 731 730,861
CWMBS Inc., Series 98
6.50% due 7/25/13 2,173 2,066,080
CWMBS Inc., Series 97
6.75% due 10/25/27 164 163,788
Chase Mortgage
Financial Trust
6.50% due 9/25/13 2,008 1,906,781
Federal Home Loan
Mortgage Corp.
6.25% due 6/15/24 3,440 3,313,690
6.75% due 8/15/04 1,500 1,485,000
Federal National Mortgage
Association
7.412% due 8/17/21 2,941 2,957,834
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
Government National
Mortgage Association
7.25% due 10/16/22 $1,446 $ 1,451,526
Residential Asset
Securitization Trust
7.00% due 2/25/08 452 451,603
-----------
14,527,163
-----------
MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 17.1%
- ----------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.00% TBA 1,000 932,500
6.00% due 8/01/00 2,037 2,030,208
6.50% due 2/01/11 68 66,950
6.50% due 4/01/11 235 231,858
6.50% due 7/01/11 288 282,430
6.50% due 8/01/11 63 61,814
6.50% due 9/15/22 761 742,150
8.50% due 4/01/01 6 6,087
-----------
4,353,997
-----------
Federal National
Mortgage Association
5.50% TBA 10,000 9,009,375
6.50% TBA 9,130 8,747,636
6.50% TBA 4,500 4,412,790
6.50% due 5/01/11 323 317,863
6.50% due 7/01/11 316 310,275
6.50% due 8/25/22 1,500 1,446,824
6.50% due 4/01/29 3,926 3,761,878
6.50% due 5/01/29 4,420 4,234,949
7.00% due 6/01/03 170 170,050
7.00% due 7/01/03 275 276,375
7.50% due 10/01/25 795 798,210
7.50% due 11/01/25 1,544 1,550,095
7.50% due 5/01/26 166 166,412
7.50% due 6/01/26 27 27,083
7.50% TBA 9,700 9,718,188
8.00% due 6/01/02 6 5,552
8.00% due 5/01/26 336 342,696
8.00% due 6/01/26 166 169,560
8.00% due 7/01/26 87 88,839
-----------
45,554,650
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 9.4%
- ----------------------------------------------------------------------
6.50% TBA 2,925 2,793,375
6.50% TBA 4,000 3,803,750
7.00% TBA 17,350 17,008,422
7.00% due 2/15/24 3,688 3,638,081
8.00% due 12/15/07 39 38,988
-----------
27,282,616
TOTAL MORTGAGE OBLIGATIONS 91,718,426
-----------
17
<PAGE>
U.S. FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (Continued) October 31, 1999
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
YANKEE BONDS -- 4.4%
- ----------------------------------------------------------------------
Corporacion Andina
De Fomento
7.75% due 3/01/04 $3,180 $ 3,134,175
DaimlerChrysler of
North America
7.20% due 9/01/09 3,025 3,024,032
Imperial Tob Overseas
7.125% due 4/01/09 3,275 2,992,859
Korea Development Bank
7.125% due 4/22/04 2,930 2,838,300
TPSA Financial
7.75% due 12/10/08 900 846,426
-----------
12,835,792
-----------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 21.3%
- ----------------------------------------------------------------------
UNITED STATES TREASURY BONDS -- 7.0%
- ----------------------------------------------------------------------
8.125% due 8/15/19 4,500 5,300,145
3.625% due 4/15/28 4,029 3,692,760
3.875% DUE 4/15/29 5,082 4,865,967
6.125% due 8/15/29 6,600 6,571,092
-----------
20,429,964
-----------
UNITED STATES TREASURY NOTES -- 12.6%
- ----------------------------------------------------------------------
5.625% due 4/30/00 215 215,234
5.50% due 12/31/00 110 109,777
6.50% due 5/31/01 1,150 1,162,213
6.00% due 8/15/04 10,935 10,960,588
6.00% due 8/15/09 3,760 3,754,698
6.875% due 5/15/06 8,000 8,302,480
6.625% due 5/15/07 6,720 6,895,325
3.875% due 1/15/09 5,550 5,445,938
-----------
36,846,253
-----------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- ----------------------------------------------------------------------
UNITED STATES AGENCY
OBLIGATIONS -- 1.7%
- ----------------------------------------------------------------------
Federal National Mortgage
Association
5.49% due 8/18/00 $5,000 $ 4,979,700
-----------
TOTAL UNITED STATES
GOVERNMENT AND OTHER
GOVERNMENT OBLIGATIONS 62,255,917
-----------
TOTAL FIXED INCOME
(Identified Cost
$341,086,190) 330,421,352
-----------
PREFERRED STOCK -- 1.1%
- ----------------------------------------------------------------------
Comed Financing I
(Identified Cost
$3,531,870) 138 3,345,967
-----------
SHORT-TERM OBLIGATIONS -- 2.1%
- ----------------------------------------------------------------------
First Union National Bank
5.30% Due 11/01/99
proceeds at maturity $5,380,375
(collateralized by $5,470,000
Federal Home Loan Mortgage
6.16% due 3/29/01,
valued at $5,470,864) 5,378 5,378,000
-----------
United States Treasury Bills
4.50% due 12/23/99 115 114,253
4.57% due 12/23/99 85 84,439
4.66% due 12/23/99 432 429,092
-----------
627,784
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified Cost
$6,005,784) 6,005,784
-----------
TOTAL INVESTMENTS
(Identified Cost
$350,623,844) 116.5% 339,773,103
OTHER ASSETS,
LESS LIABILITIES (16.5) (48,237,505)
-----------
NET ASSETS 100.0% $291,535,598
===== ============
FUTURES CONTRACTS
- ----------------------------------------------------------------------
Futures contracts which were open at October 31, 1999 are as follows :
<TABLE>
<CAPTION>
AGGREGATE
DESCRIPTION/ NUMBER OF FACE VALUE OF EXPIRATION UNREALIZED
POSITION CONTRACTS CONTRACTS DATE GAIN/(LOSS)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Long Bond (Sell) (50) $ (5,000,000) December 20, 1999 $(10,922)
U.S. Two Year Note (Buy) 140 14,000,000 December 29, 1999 (9,275)
U.S. Five Year Note (Buy) 120 12,000,000 December 31, 1999 98,475
U.S. Ten Year Note (Sell) (275) (27,500,000) December 20, 1999 36,023
--------
$114,301
--------
</TABLE>
See notes to financial statements
18
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $350,623,844) $339,773,103
Cash 1,941
Interest receivable 3,271,699
Receivable for investments sold 25,952,320
Receivable for daily variation on futures contracts 85,156
- --------------------------------------------------------------------------------
Total assets 369,084,219
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 77,034,746
Payable for daily variations on futures contracts 280,469
Payable to affiliates--Management Fee (Note 2) 108,565
Accrued expenses and other liabilities 124,841
- --------------------------------------------------------------------------------
Total liabilities 77,548,621
- --------------------------------------------------------------------------------
Net Assets $291,535,598
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $291,535,598
================================================================================
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Interest Income $12,059,138
Dividend Income 170,690
- --------------------------------------------------------------------------------
$12,229,828
EXPENSES:
Management fees (Note 2) 664,250
Custody and fund accounting fees 15,640
Audit fees 38,473
Legal fees 35,303
Trustees fees 5,320
Other 3,979
- --------------------------------------------------------------------------------
Total expenses 762,965
- --------------------------------------------------------------------------------
Net investment income 11,466,863
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized depreciation of investments and
futures contracts (10,736,440)
Less unrealized depreciation from contributed
assets (Note 1) (3,295,843)
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (7,440,597)
- --------------------------------------------------------------------------------
Net realized gain from futures transactions 389,144
Net realized loss from investment transactions (6,199,658)
- --------------------------------------------------------------------------------
Net realized loss from investment and
futures transactions 5,810,514)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (13,251,111)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,784,248)
- --------------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $11,466,863
Net realized loss from investment and futures transactions (5,810,514)
UNREALIZED DEPRECIATION OF INVESTMENTS (7,440,597)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (1,784,248)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 452,433,828
Value of withdrawals (159,113,982)
- --------------------------------------------------------------------------------
Net increase in net assets from capital transactions 293,319,846
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 291,535,598
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------------
End of period $291,535,598
================================================================================
See notes to financial statements
U.S. FIXED INCOME PORTFOLIO
Financial Highlights
For the Period
November 1, 1998
(Commencement
of Operations) to
October 31, 1999
================================================================================
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $291,536
Ratio of expenses to average net assets 0.40%
Ratio of net investment income to average net assets 6.04 %
Portfolio turnover 253%
================================================================================
See notes to financial statements
20
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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. Also, on May 3, 1999, the Intermediate Income Portfolio transferred
all of its investable assets in the amount of $153,278,329 including $1,000,795
of unrealized depreciation to the Portfolio in exchange for an interest in the
Portfolio. Additionally, on August 1, 1999, the Balanced Portfolio transferred a
portion of its investable assets in the amount of $113,810,272 including
$3,978,434 of unrealized depreciation 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.
21
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
C. U.S. Federal Income Taxes The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. Expenses The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. Repurchase Agreements It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled 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 (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 $664,250 for the period
November 1, 1998 (commencement of operations) to October 31, 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 $514,561,468 and $514,252,682,
respectively, for the period November 1, 1998 (Commencement of Operations) to
October 31, 1999.
23
<PAGE>
U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized
appreciation (depreciation) in value of the investment securities owned at
October 31, 1999, as computed on a federal income tax basis, are as follows:
Aggregate cost $350,829,042
================================================================================
Gross unrealized appreciation $ 299,826
Gross unrealized depreciation (11,355,765)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(11,055,939)
================================================================================
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 October 31, 1999, the commitment fee allocated
to the Portfolio was $599. Since the line of credit was established, there have
been no borrowings.
24
<PAGE>
U.S. FIXED INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"),
WITH RESPECT TO ITS SERIES, U.S. FIXED INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of U.S. Fixed Income Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, and
the related statements of operations and of changes in net assets and the
financial highlights for the period November 1, 1998 (Commencement of
Operations) through October 31, 1999. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
October 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the period November 1, 1998 (Commencement of Operations) through
October 31, 1999 in accordance with U.S.
generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Acccountants
Toronto, Ontario
December 14, 1999
25
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<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
<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 Value Portfolio
o CitiFunds Small Cap Growth 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 California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds
Intermediate Income Portfolio. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective prospectus of
CitiFunds Intermediate Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds Intermediate Income Portfolio, which preceded
or accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency,
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554
(C) 1999 Citicorp (Recycle Logo) Printed on recycled paper CFA/INI/1099
