Annual Report o October 31, 1998
CitiFunds(SM)
Intermediate
Income Portfolio
BONDS
================================================================================
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
================================================================================
<PAGE>
TABLE OF CONTENTS
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Portfolio Highlights 3
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Fund Performance 4
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Portfolio of Investments 5
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Statement of Assets and Liabilities 8
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Statement of Operations 8
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Statement of Changes in Net Assets 9
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Financial Highlights 10
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Notes to Financial Statements 11
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Independent Auditors' Report 16
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholder:
This annual report covers the period from January 1, 1998, through October
31, 1998, for the CitiFundsSM Intermediate Income Portfolio. This reporting
period reflects a recent change in the Portfolio's fiscal year, which now ends
on October 31. Accordingly, you will receive shareholder reports every six
months, as of April 30 and October 31 of each calendar year.
Much of the 10-month period ended October 31, 1998 saw a continuation of
generally positive economic conditions in the United States. However, over the
past several months, the spreading financial crisis overseas has caused prices
in the U.S. stock market and some sectors of the U.S. bond market to decline.
In our view, recent market volatility once again confirms the benefits of
diversification. By allocating your investment assets among a number of
different markets, you may be able to reduce the effects of heightened
volatility on your overall portfolio. In our view, CitiFunds Intermediate Income
Portfolio can play a valuable role as part of such a diversified investment
portfolio.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
November 20, 1998
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
SO FAR, 1998 HAS PROVIDED MIXED RESULTS FOR FIXED-INCOME INVESTORS. A slowing
U.S. economy, persistently low inflation and declining long-term interest rates
have been good for prices of U.S. Treasury securities. These direct obligations
of the federal government rallied during the second and third quarters of 1998,
when it became clearer to investors that financial instability overseas would
prevent the U.S. economy from overheating and rekindling inflation pressures. In
fact, economic growth slowed substantially, and yields on U.S. Treasury bonds
fell to their lowest levels in more than 30 years. When yields decline, bond
prices rise and provide capital appreciation for investors.
OTHER TYPES OF FIXED-INCOME SECURITIES HAVE NOT BENEFITTED AS MUCH FROM THESE
ECONOMIC CONDITIONS, however. That's because spreading financial instability
overseas has created a "flight to quality" among foreign and domestic investors,
who have generally avoided all sectors of the U.S. bond market except Treasury
securities. Prices of corporate bonds and even U.S. agency securities fell
relative to U.S. Treasury securities when risk-averse investors shifted their
assets away from these markets.
The Fund was well positioned to take advantage of these influences. In
anticipation of declining interest rates, we maintained the portfolio's AVERAGE
DURATION -- a measure of sensitivity to changing interest rates -- toward the
long end of its range. Accordingly, we were able to maintain higher yields as
interest rates fell. In addition, WE MAINTAINED OUR NEUTRAL ALLOCATIONS TO U.S.
TREASURY SECURITIES, CORPORATE BONDS AND MORTGAGE-BACKED SECURITIES until
recently. As a result, we participated in this past summer's rally of the
Treasury market.
More recently, WE HAVE REPOSITIONED THE PORTFOLIO FOR THE MARKET CONDITIONS
THAT WE BELIEVE LIE AHEAD. Although we expect further declines in short-term
interest rates if the Federal Reserve Board continues to ease monetary policy in
response to economic weakness overseas, we believe that long-term interest rates
should remain near current levels. Accordingly, we have reduced the portfolio's
average duration to a more neutral position. This position should help us
capture higher yields more quickly if they become available. What's more, it is
our opinion that prices in the corporate bond and mortgage-backed securities
markets declined more than economic fundamentals currently warrant, creating
some compelling values in high-quality securities. Accordingly, we have shifted
some assets to these sectors from U.S. Treasuries.
Our economic outlook calls for slow growth, low inflation and an
accommodative monetary policy. In fact, the Federal Reserve Board has already
reduced key short-term interest rates twice over the past few months, their
first change in monetary policy since early 1997. Historically, these types of
conditions have generally been favorable for high-quality U.S. bonds. On the
other hand, we are aware of the dangers of continuing instability in overseas
markets. While we do not currently expect these international influences to stop
or reverse U.S. economic growth, we are monitoring the situation carefully. If
conditions change, we are prepared to reposition the portfolio to attempt to
capture the opportunities and avoid the risks that the future may bring.
2
<PAGE>
FUND FACTS
FUND OBJECTIVE
To generate a high level of current income and preserve the value of its
shareholders' investments.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid monthly
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
June 25, 1993 Distributed semi-annually, if any
NET ASSETS AS OF 10/31/98 BENCHMARKS
$76.8 million o Lipper Intermediate Investment
Grade Funds Average
o Lehman Aggregate Bond Index
PORTFOLIO HIGHLIGHTS
PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1998
[the following table represents a pie chart in the printed piece]
Asset-Backed Securities 6%
Mortgage Obligations 27%
Corporate Bonds 22%
U.S. Treasury Issues 33%
*Short Term 12%
*Includes cash and net other assets.
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
SINCE
TEN ONE FIVE 6/25/93
ALL PERIODS ENDING OCTOBER 31, 1998 MONTHS** YEAR YEAR* INCEPTION*
- --------------------------------------------------------------------------------
CitiFunds Intermediate Income Portfolio 7.57% 8.63% 5.76% 6.18%
Lipper Intermediate Investment Grade Funds
Average 6.63% 7.94% 6.09% 5.78%+
Lehman Aggregate Bond Index 7.75% 9.34% 7.02% 7.26%+
* Average Annual Total Return
** Not Annualized
+ From 6/30/93
30-Day SEC Yield 4.55%
Income Dividends Per Share $0.439
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$13,782 (as of 10/31/98). The graph shows how this compares to its benchmarks
over the same period.
[The following table represents a table in the printed piece.]
CitiFunds
Lipper Intermediate Lehman Aggregate Intermediate
Date Inv. Grade Avg. Bond Index Income Fund
Jun-93 10000 10000 10030
Jul-93 10042 10057 10073
Aug-93 10228 10233 10325
Sep-93 10268 10261 10406
Oct-93 10301 10299 10416
Nov-93 10209 10211 10246
Dec-93 10257 10266 10299
Jan-94 10387 10405 10445
Feb-94 10202 10224 10215
Mar-94 9980 9971 9968
Apr-94 9890 9891 9868
May-94 9875 9890 9841
Jun-94 9856 9869 9810
Jul-94 10004 10065 9976
Aug-94 10024 10077 10003
Sep-94 9911 9929 9836
Oct-94 9896 9920 9798
Nov-94 9867 9898 9760
Dec-94 9914 9967 9838
Jan-95 10072 10164 10021
Feb-95 10281 10406 10249
Mar-95 10345 10469 10322
Apr-95 10478 10616 10439
May-95 10848 11027 10930
Jun-95 10916 11107 10992
Jul-95 10887 11083 10941
Aug-95 11009 11217 11039
Sep-95 11106 11326 11159
Oct-95 11244 11473 11199
Nov-95 11401 11645 11310
Dec-95 11546 11808 11456
Jan-96 11622 11886 11509
Feb-96 11423 11679 11279
Mar-96 11345 11597 11190
Apr-96 11276 11532 11113
May-96 11256 11509 11083
Jun-96 11384 11664 11245
Jul-96 11410 11695 11263
Aug-96 11401 11675 11230
Sep-96 11587 11878 11443
Oct-96 11821 12142 11693
Nov-96 12016 12350 11895
Dec-96 11910 12235 11769
Jan-97 11805 12273 11824
Feb-97 11829 12303 11853
Mar-97 11705 12167 11708
Apr-97 11857 12349 11889
May-97 11959 12467 11983
Jun-97 12092 12615 12115
Jul-97 12403 12956 12417
Aug-97 12294 12846 12296
Sep-97 12465 13034 12472
Oct-97 12522 13223 12688
Nov-97 12557 13284 12682
Dec-97 12670 13418 12813
Jan-98 12833 13590 13019
Feb-98 12815 13580 12986
Mar-98 12861 13626 13034
Apr-98 12916 13697 13078
May-98 13031 13827 13217
Jun-98 13125 13944 13329
Jul-98 13147 13974 13333
Aug-98 13307 14201 13583
Sep-98 13601 14534 13874
Oct-98 13502 14457 13782
The graph assumes all dividends and distributions are reinvested at Net Asset
Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors. Total Returns reflect certain voluntary fee
waivers which may be terminated. If the waivers were not in place, total returns
would be lower.
4
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
FIXED INCOME -- 86.8%
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- 5.5%
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Aames Mortgage Trust
6.59% due 6/15/24 $ 375 $ 381,735
Contimortgage Home
Equity Loan
6.13% due 3/15/13 500 500,935
Green Tree Financial Corp.
6.71% due 8/15/29 550 537,883
8.05% due 10/15/27 1,500 1,632,645
IMC Home Equity Loan
6.16% due 5/20/14 1,000 1,004,320
PNC Mortgage
Securities Corp.
6.392% due 10/25/13 200 195,563
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4,253,081
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DOMESTIC CORPORATIONS -- 19.3%
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Associates Corp. N. A.
5.96% due 5/15/37 750 745,912
Atlantic City Electric Co.
7.01% due 8/23/02 560 591,018
BB&T Corp.
6.375% due 6/30/05 1,330 1,384,184
Century Tel Enterprises Inc.
6.30% due 1/15/08 320 326,736
Conseco Inc.
6.40% due 6/15/01 450 453,744
Dayton Hudson Corp.
5.95% due 6/15/00 225 228,199
Equitable Life Assurance
6.95% due 12/01/05 760 807,941
Ford Motor Co.
6.50% due 8/01/18 520 491,634
GTE Corp.
6.36% due 4/15/06 500 522,945
General Electric
Capital Corp.
5.60% due 1/14/00 285 286,951
Hartford Financial
Services Group Inc.
6.375% due 11/01/08 320 318,251
MCI Communications Corp.
6.125% due 4/15/12 480 490,824
Mattel Inc.
6.00% due 7/15/03 480 493,235
Merrill Lynch & Co., Inc.
6.00% due 7/15/05 265 264,944
National Rural Utilities
6.20% due 2/01/08 670 697,008
Norfolk Southern Corp.
6.95% due 5/01/02 1,050 1,096,378
Occidental Petroleum Corp.
6.40% due 4/01/03 400 401,128
Petroleum Geological
Services
6.625% due 3/30/08 565 552,028
Philadelphia Electric Co.
6.625% due 3/01/03 670 699,473
7.125% due 9/01/02 125 132,133
Raytheon Co.
5.95% due 3/15/01 430 435,366
6.30% due 3/15/05 290 297,218
<PAGE>
Sears Credit
5.25% due 10/16/08 820 814,555
Sony Corp.
6.125% due 3/04/03 350 357,861
Suntrust Banks Inc.
6.00% due 1/15/28 350 353,479
TCI Communications Inc.
6.875% due 2/15/06 375 401,006
USA Waste Services Inc.
6.50% due 12/15/02 650 667,192
Union Pacific Resources
Group Inc.
6.50% due 5/15/05 220 218,882
Walt Disney Co.
6.75% due 3/30/06 270 291,181
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14,821,406
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MORTGAGE OBLIGATIONS -- 26.7%
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COLLATERALIZED MORTGAGE
OBLIGATIONS -- 10.0%
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Asset Securitization Corp.,
Series 95
7.10% due 8/13/29 258 273,175
7.384% due 8/13/29 1,000 1,074,840
Asset Securitization Corp.,
Series 97
6.85% due 2/14/41 225 234,977
Commercial Mortgage Corp.
5.80% due 3/15/06 274 272,342
GMAC Commercial
Mortgage Inc.
6.42% due 5/15/35 550 558,261
J.P. Morgan Commercial
Mortgage Finance Corp.
6.37% due 1/15/30 249 254,469
Merrill Lynch Mortgage Co.
6.95% due 6/18/29 469 488,338
Morgan Stanley Capital
Investment Inc.
6.44% due 11/15/02 350 358,722
5
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS Continued October 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Nomura Asset Securitization
Corp.
8.15% due 4/04/27 $1,000 $ 1,144,060
Norwest Asset
Securities Corp.
6.75% due 11/25/27 2,000 2,016,980
Residential Asset
Securitization Trust
7.00% due 2/25/08 271 272,650
Structured Asset Securities
Corp.
6.79% due 10/15/34 704 733,348
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7,682,162
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MORTGAGE BACKED
SECURITIES/PASSTHROUGHS -- 14.4%
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.00% due 4/15/08 500 503,100
6.15% due 3/15/19 2,000 2,004,560
6.25% due 6/15/24 535 550,717
6.50% due 12/01/99 500 504,063
6.75% due 8/15/04 1,500 1,518,750
7.00% due 12/01/99 2,000 2,039,375
8.50% due 4/01/01 13 13,290
Federal National
Mortgage Association
6.00% due 12/01/99 575 568,172
6.50% due 12/01/99 560 564,374
6.50% due 6/18/10 1,000 1,028,845
7.349% due 8/17/21 400 429,336
7.50% due 10/01/25 1,104 1,132,071
7.50% due 4/01/26 41 42,137
7.50% due 5/01/26 180 185,020
8.00% due 6/01/02 11 10,819
-------------
11,094,629
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 2.3%
- --------------------------------------------------------------------------------
7.25% due 10/16/22 1,683 1,694,792
8.00% due 12/15/07 50 51,872
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1,746,664
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TOTAL MORTGAGE OBLIGATIONS 20,523,455
-------------
YANKEE BONDS -- 1.9%
- --------------------------------------------------------------------------------
Embotelladora Andina SA
7.00% due 10/01/07 55 44,997
Ericsson Telephone
6.75% due 2/12/02 325 345,022
Inter-American Development
Bank
6.95% due 8/01/26 1,000 1,096,610
-------------
1,486,629
-------------
UNITED STATES GOVERNMENT
AND OTHER GOVERNMENT
OBLIGATIONS -- 33.4%
- --------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS -- 10.6%
6.25% due 8/15/23 $2,500 $ 2,797,650
6.625% due 2/15/27 1,150 1,361,669
6.125% due 11/15/27 3,000 3,375,930
3.625% due 4/15/28 606 606,508
-------------
8,141,757
-------------
UNITED STATES TREASURY NOTES -- 18.9%
- --------------------------------------------------------------------------------
6.00% due 6/30/99 4,800 4,847,232
5.625% due 4/30/00 580 590,510
6.625% due 6/30/01 2,665 2,816,559
5.75% due 11/30/02 495 519,438
5.25% due 8/15/03 320 333,901
5.875% due 2/15/04 185 198,037
6.875% due 5/15/06 3,000 3,434,520
6.50% due 5/31/02 1,000 1,068,910
6.50% due 10/15/06 355 398,211
5.625% due 5/15/08 290 312,611
-------------
14,519,929
-------------
UNITED STATES AGENCY OBLIGATIONS -- 1.0%
- --------------------------------------------------------------------------------
Tennessee Valley Authority
5.88% due 4/01/36 750 786,367
- --------------------------------------------------------------------------------
OTHER GOVERNMENT OBLIGATIONS -- 2.9%
- --------------------------------------------------------------------------------
British Columbia
Province
5.375% due 10/29/08 400 396,760
Canadian Government
5.25% due 11/05/08 350 348,292
Manitoba Province
5.50% due 10/01/08 910 906,023
Republic of Ireland
6.875% due 3/10/03 500 538,750
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2,189,825
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TOTAL UNITED STATES
GOVERNMENT & OTHER
GOVERNMENT OBLIGATIONS 25,637,878
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TOTAL FIXED INCOME
(Identified Cost $65,030,784) 66,722,449
-------------
PREFERRED STOCK -- 0.8%
- --------------------------------------------------------------------------------
Comed Financing I
(Identified Cost $590,291) 23 582,012
-------------
6
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 16.3%
- --------------------------------------------------------------------------------
FCC National Bank
5.68% due 6/03/99 $1,000 $ 999,607
United States Treasury Bills
4.14% due 12/24/98 210 208,723
4.68% due 12/24/98 8 7,945
4.72% due 12/24/98 30 29,792
Westdeutsche Landesbank
Repurchase Agreement
5.35% due 11/2/98 proceeds
at maturity $11,264,020
(collateralized by $10,540,000
U.S. Treasury Note 5.75%
due 4/30/03; valued at
$11,486,953) 11,259 11,259,000
-------------
TOTAL SHORT-TERM
OBLIGATIONS
(Identified Cost $12,505,067) 12,505,067
TOTAL INVESTMENTS
(Identified Cost
$78,126,142) 103.9% 79,809,528
OTHER ASSETS,
LESS LIABILITIES (3.9) (3,021,164)
===== -------------
NET ASSETS 100.0% $76,788,364
===== =============
See notes to financial statements
7
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
================================================================================
ASSETS:
Investments, at value (Note 1A) (Identified Cost, $78,126,142) $79,809,528
Cash 759,150
Receivable for investments sold 335,135
Receivable for shares of beneficial interest sold 1,454,498
Interest receivable 893,522
- --------------------------------------------------------------------------------
Total assets 83,251,833
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,316,613
Payable for shares of beneficial interest repurchased 63,435
Payable to affiliate--Management fees (Note 2) 10,999
Accrued expenses 71,931
Income distribution payable 491
- --------------------------------------------------------------------------------
Total liabilities 6,463,469
- --------------------------------------------------------------------------------
NET ASSETS for 7,676,368 shares of beneficial interest outstanding $76,788,364
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $77,349,154
Accumulated net realized loss from investment transactions and
futures contracts (2,244,176)
Unrealized appreciation of investments 1,683,386
- --------------------------------------------------------------------------------
Total $76,788,364
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE OF BENEFICIAL INTEREST $10.00
================================================================================
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF OPERATIONS
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1998 DECEMBER 31,
(Note 1F) 1997
================================================================================
INVESTMENT INCOME (Note 1B): $2,423,695 $2,683,236
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 273,701 235,757
Distribution fees (Note 3) 97,750 58,940
Custody and fund accounting fees 47,061 74,350
Audit fees 28,733 29,350
Shareholder reports 23,244 29,695
Transfer agent fees 9,500 12,000
Trustees fees 13,752 15,261
Legal fees 14,484 17,147
Miscellaneous 11,425 6,613
Shareholder servicing agent fee (Note 4) -- 98,232
- --------------------------------------------------------------------------------
Total expenses 519,650 577,345
Less aggregate amounts waived by the
Manager (Note 2) (165,498) (216,066)
Less fees paid indirectly (Note 1I) (2,288) (7,637)
- --------------------------------------------------------------------------------
Net expenses 351,864 353,642
- --------------------------------------------------------------------------------
Net investment income 2,071,831 2,329,594
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 688,674 334,262
Net realized gain (loss) on futures transactions 54,644 (61,794)
Net change in unrealized appreciation of
investments and future contracts 662,088 649,983
Net realized and unrealized gain on investments
and future contracts 1,405,406 922,451
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,477,237 $3,252,045
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, 1998 -----------------------
(Note1F) 1997 1996
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 2,071,831 $ 2,329,594 $ 2,655,675
Net realized gain (loss) from investments
and futures transactions 743,318 272,468 (830,939)
Net change in unrealized appreciation
(depreciation) of investments and
future contracts 662,088 649,983 (643,316)
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 3,477,237 3,252,045 1,181,420
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,112,415) (2,338,323) (2,638,684)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares 45,904,926 595,327 1,467,543
Net asset value of shares issued to
shareholders from reinvestment of
distributions 2,110,978 2,335,328 2,602,603
Cost of shares repurchased (9,293,925) (11,061,426) (8,312,092)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets from
transactions in shares of beneficial
interest 38,721,979 (8,130,771) (4,241,946)
NET INCREASE (DECREASE) IN NET ASSETS 40,086,801 (7,217,049) (5,699,210)
NET ASSETS:
Beginning of period 36,701,563 43,918,612 49,617,822
- --------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $0, $26,955
and $35,684 respectively) $76,788,364 $36,701,563 $43,918,612
================================================================================
See notes to financial statements
9
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
TEN MONTHS JUNE 25, 1993
ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT
OCTOBER 31, 1998 ------------------------------ OF OPERATIONS) TO
(Note 1F) 1997 1996 1995 1994 DECEMBER 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $9.72 $9.48 $9.77 $8.91 $9.88 $10.00
- -------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.447 0.575 0.54 0.57 0.521 0.261
Net realized and
unrealized gain (loss)
on investments 0.272 0.239 (0.29) 0.86 (0.959) 0.037
- -------------------------------------------------------------------------------------------
Total from operations 0.719 0.814 0.25 1.43 (0.438) 0.298
- -------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.439) (0.574) (0.54) (0.57) (0.516) (0.261)
In excess of net
investment income -- -- -- -- -- (0.006)
Net realized gain on
investments -- -- -- -- (0.016) (0.151)
- -------------------------------------------------------------------------------------------
Total distributions (0.439) (0.574) (0.54) (0.57) (0.532) (0.418)
Net Asset Value,
end of period $10.00 $9.72 $9.48 $9.77 $8.91 $9.88
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $76,788 $36,702 $43,919 $49,618 $47,582 $61,183
Ratio of expenses to
average net assets(A) 0.91% *0.92% 0.90% 0.90% 0.90% 0.90%*
Ratio of expenses to
average net assets
after fees paid
indirectly(A) 0.90%* 0.90% 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment
income to average
net assets 5.30%* 5.92% 5.72% 5.97% 5.52% 4.95%*
Portfolio turnover 120% 146% 495% 396% 291% 103%
Total return 7.57%** 8.87% 2.73% 16.45% (4.48)% 2.99%**
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the periods indicated the net investment income per share and
the ratios would have been as follows:
Net investment income
per share $0.412 $0.522 $0.50 $0.52 $0.475 $0.236
RATIOS:
Expenses to average
net assets 1.33%* 1.47% 1.39% 1.42% 1.39% 1.38%*
Net investment income to
average net assets 4.88%* 5.37% 5.23% 5.45% 5.03% 4.47%*
- ----------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) The expense ratios for the year ended December 31, 1995 and the periods
thereafter have been adjusted to reflect a change in reporting requirements.
The new reporting guidelines require the Fund to increase its expense ratio
by the effect of any expense offset arrangements with its service providers.
The expense ratios for each of the periods ended before December 31, 1995
have not been adjusted to reflect this change.
See notes to financial statements
10
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Intermediate Income Portfolio
(formerly Landmark Intermediate Income Fund) (the "Fund") is a separate
diversified series of CitiFunds Fixed Income Trust (the "Trust") which is
organized as a Massachusetts business trust. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Investment Manager of the Fund is Citibank, N.A.
("Citibank"). CFBDS, Inc. ("CFBDS") (formerly Landmark Funds Broker-Dealer
Services, Inc.) acts as the Fund's Sub-Administrator and Distributor.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles and are as follows:
A. INVESTMENT SECURITY VALUATIONS Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by a pricing service, which takes into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, and other market data, without
exclusive reliance upon quoted prices or exchange or over-the-counter prices,
since such valuations are believed to reflect more accurately the fair value of
the securities. Short-term obligations (maturing in 60 days or less) are valued
at amortized cost, which approximates market value. Securities, if any, for
which there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. INCOME Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or discount on long-term
debt securities when required for Federal income tax purposes. Gain and loss
from principal paydowns are recorded as ordinary income.
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At October 31, 1998, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,218,509 of which $1,142,935 will
expire on October 31, 2002 and $1,075,574 which will expire on October 31, 2004.
Such capital loss carryover will reduce the Fund's taxable income arising from
future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax.
11
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
D. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund.
E. DISTRIBUTIONS The Fund distinguishes between distributions on a tax basis
and a financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
F. CHANGE IN FISCAL YEAR END During fiscal year 1998, the Fund changed its
fiscal year end from December 31 to October 31. G. Repurchase Agreements It is
the policy of the Fund to require the custodian bank to take possession, to have
legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodial bank's vault, all securities held as collateral
in support of repurchase agreement investments. Additionally, procedures have
been established by the Fund to monitor, on a daily basis, the market value of
the repurchase agreement's underlying investments to ensure the existence of a
proper level of collateral.
H. FUTURES CONTRACTS The Fund may engage in futures transactions. The Fund
may use futures contracts in order to protect the Fund from fluctuations in
interest rates without actually buying or selling debt securities, or to manage
the effective maturity or duration of fixed income securities in the Fund's
portfolio in an effort to reduce potential losses or enhance potential gains.
Buying futures contracts tends to increase the Fund's exposure to the underlying
instrument. Selling futures contracts tends to either decrease the Fund's
exposure to the underlying instrument, or to hedge other fund investments.
Upon entering into a futures contract, the Fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin". Subsequent
payments ("variation margin") are made or received by the Fund each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses and the
Fund recognizes a realized gain or loss when the contract is closed. Futures
contracts are valued at the settlement price established by the board of trade
or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the
12
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statement of Assets and
Liabilities.
H. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
I. FEES PAID INDIRECTLY The Fund's custodian bank calculates its fees based
on the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expense on the Statement of Operations.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs such
duties and receives such compensation from Citibank as from time to time is
agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of
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, are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.70% of the Funds' average
daily net assets. The management fee amounted to $273,701 of which $165,498 was
voluntarily waived for the ten months ended October 31, 1998.
Prior to January 1, 1998, such services were provided under separate
investment advisory and administrative agreements. The investment advisory fee
was computed at the annual rate of 0.35% of average daily net assets, which
amounted to $137,525 of which $82,010 was voluntarily waived for the year ended
December 31, 1997. The administrative fee was computed at an annual rate of
0.25% of average daily net assets, which amounted to $98,232 of which $75,116
was voluntarily waived for the year ended December 31, 1997 (Note 5). The Trust
pays no compensation directly to any Trustee or any other officer who is
affiliated with the Sub-Administrator, all of whom receive remuneration for
their services to the Trust from the Sub-Administrator or its affiliates.
3. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, in which the Fund pays
fees for distribution, sales and marketing and shareholder services at an annual
rate not to exceed 0.25% and 0.15%, respectively for the ten months ended
October 31, 1998 and the year ended December 31, 1997 of the Fund's average
daily net assets. The distribution fees amounted to $97,750 for the ten months
13
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
ended October 31, 1998 and $58,940 all of which was voluntarily waived for the
year ended December 31, 1997. (Note 5).
4. SHAREHOLDER SERVICING AGENTS FEE -- The Fund had entered into shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which the
Shareholder Servicing Agent acts as an agent for its customers and provides
other related services. For their services, each Shareholder Servicing Agent
received fees from the Fund, on an annualized basis, equal to 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period by investors for whom such Shareholder Servicing Agent maintained a
servicing relationship. Shareholder Servicing Agents' fees amounted to $98,232
for the year ended December 31, 1997 (Note 5).
5. OTHER -- At a Special Meeting on October 24, 1997, the Shareholders of the
Fund approved a Management Agreement with Citibank, to provide administrative
services, and a new Rule 12b-1 Service Plan, both effective January 1, 1998.
These new agreements terminated the Fund's existing Administration, Distribution
and Service Plan Agreements.
6. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other
than short-term obligations, aggregated $84,626,936 and $53,919,012,
respectively for the ten months ended October 31, 1998.
7. 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:
14
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
TEN MONTHS YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31,
OCTOBER 31, 1998 1997 1996
================================================================================
Shares sold 4,626,775 62,642 155,635
Shares issued to shareholders from
reinvestment of distributions 214,180 244,817 276,737
Shares repurchased (940,430) (1,162,555) (881,410)
- --------------------------------------------------------------------------------
Net increase (decrease) 3,900,525 (855,096) (449,038)
- --------------------------------------------------------------------------------
8. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1998,
as computed on a federal income tax basis, are as follows:
Aggregate cost $78,151,808
- --------------------------------------------------------------------------------
Gross unrealized appreciation $1,837,262
Gross unrealized depreciation (179,542)
- --------------------------------------------------------------------------------
Net unrealized appreciation $1,657,720
- --------------------------------------------------------------------------------
9. LINE OF CREDIT The Fund, along with other CitiFunds entered into an ongoing
agreement with a bank which allows the Funds collectively to borrow up to $60
million for temporary or emergency purposes. Interest on borrowings, if any, is
charged to the specific fund executing the borrowing at the base rate of the
bank. The line of credit requires a quarterly payment of a commitment fee based
on the average daily unused portion of the line of credit. For the ten months
ended October 31, 1998 and for the year ended December 31, 1997, the commitment
fees allocated to the Fund were $153 and $165, respectively. Since the line of
credit was established there have been no borrowings.
15
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of CitiFunds Intermediate Income
Portfolio (the "Fund"), a separate series of CitiFunds Fixed Income Trust (the
"Trust") (a Massachusetts business trust), as of October 31, 1998, the related
statement of operations for the ten months ended October 31, 1998 and the year
ended December 31, 1997, the statement of changes in net assets for the ten
months ended October 31, 1998 and the years ended December 31, 1997 and 1996,
and the financial highlights for the ten months ended October 31, 1998 and for
each of the years in the five-year period ended December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CitiFunds
Intermediate Income Portfolio at October 31, 1998, the results of its
operations, the changes in its net assets, and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 14, 1998
16
<PAGE>
TRUSTEES AND OFFICERS
C. Oscar Morong, Jr., CHAIRMAN
Philip W. Coolidge*, PRESIDENT
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Walter E. Robb, III
E. Kirby Warren
William S. Woods, Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Growth Portfolio
o CitiFunds Small Cap Value Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Intermediate Income Portfolio
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds National Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds New York Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded or accompanied by
an effective prospectus.
For more information contact your Service Agent
or call 1-800-625-4554
CitiFunds are made available by CFBDS, Inc. as distributor.
(C)1998 Citicorp [Recycle Logo] Printed on recycled paper CFA/INI/1098
