CITIFUNDS(r)
--------------
SHORT-TERM
U.S. GOVERNMENT
INCOME
PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
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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
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Portfolio Environment and Outlook 2
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Fund Facts 3
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Fund Performance 4
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CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
Statement of Assets and Liabilities 5
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Statement of Operations 6
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Statement of Changes in Net Assets 7
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Financial Highlights 8
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Notes to Financial Statements 9
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GOVERNMENT INCOME PORTFOLIO
Portfolio of Investments 13
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Statement of Assets and Liabilities 14
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Statement of Operations 14
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Statement of Changes in Net Assets 15
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Financial Highlights 16
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Notes to Financial Statements 17
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
While the past six months have been challenging for many types of
investments, short-term U.S. government securities have fared relatively well. A
strengthening global economy, rising interest rates and shifting investor
sentiment have created wide fluctuations in the prices of many financial assets,
especially stocks and higher yielding bonds. While prices of short-term
government securities also fluctuated, they performed relatively well as a
result of the positive outlook for Treasury supply.
We are pleased to announce that effective July 14, 2000, the front-end sales
charge of CitiFunds Short-Term U.S. Government Income Portfolio is being waived.
This report reviews the Fund's investment activities and performance during
the six months ended June 30, 2000 and provides a summary of Citibank's
perspective on and outlook for the short-term U.S. government securities market.
Thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
July 17, 2000
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
PRICES OF SHORT-TERM U.S. GOVERNMENT SECURITIES GENERALLY DECLINED LESS
THAN OTHER, HIGHER YIELDING SECTORS OF THE U.S. BOND MARKET over the past six
months, helping many investors to preserve capital during a period of rising
interest rates.
The Federal Reserve Board (the "Fed") continued to raise interest rates
during the period in response to the continuing growth of the U.S. economy. In
fact, U.S. Gross Domestic Product ("GDP")(1) rates rose an estimated 5.5% during
the first quarter of 2000. While many investment professionals expect GDP to
fall later this year, current rates of economic growth have caused many
investors to become concerned that inflationary pressures may be resurfacing. In
an attempt to forestall a potential reacceleration of inflation, the Fed has
raised short-term interest rates by 75 basis points(2) during the six-month
reporting period. In total, the Fed has raised short-term interest rates by a
total of 175 basis points since this tightening cycle began in June 1999.
THE SHORT-TERM U.S. GOVERNMENT SECURITIES MARKET WAS ALSO AFFECTED BY
SHIFTS IN U.S. TREASURY SUPPLY. During the first half of 2000, this decline in
Treasury supply helped U.S. Treasury securities outperform most other securities
of comparable maturity. This was primarily the result of two related factors: as
a result of higher tax revenues, the federal government announced that it would
buy back roughly $30 billion of long-term U.S. Treasury bonds and the market
anticipated a decrease in issuance of shorter-term debt. Both the repurchase
program and the reduction in issuance have reduced the supply of U.S. Treasury
securities. Given the strong demand from both domestic and foreign investors,
U.S. Treasuries outperformed non-Treasury securities.
In addition, during the reporting period, U.S. government agency securities
were influenced by political events when the investment policies of FNMA
("Fannie Mae") and FHLMC ("Freddie Mac") became the subject of criticism from
officials in the U.S. Senate and the Treasury Department. These comments
temporarily hurt the performance of Fannie Mae and Freddie Mac securities, which
are indirect obligations of the U.S. government, but benefited GNMA ("Ginnie
Mae") securities, which are direct obligations. As some investors shifted their
assets from Fannie Mae and Freddie Mac securities to what they deemed to be the
relative safe haven of Ginnie Mae securities, they drove Ginnie Mae prices
higher.
The Fund began the reporting period with a relatively defensive posture,
including an average duration (i.e., a measure of sensitivity to changing
interest rates) that was slightly shorter than its neutral position. This
duration strategy was designed to enhance liquidity and keep assets available
for higher yielding securities as they became available. Later on in the second
quarter, however, the manager extended the Fund's average duration to the
neutral range when evidence emerged that the U.S. economy was slowing in
response to interest rate increases by the Fed.
(1) GDP is the market value of the goods and services produced by labor and
property in the United States.
(2) A basis point is .01% or one one-hundredth of a percent.
2
<PAGE>
The manager also actively managed the mix of securities in the Portfolio
according to his extensive set of relative value analysis'. IN A RELATIVELY
VOLATILE MARKET, THE MANAGER CONTINUED TO FOCUS PRIMARILY ON U.S. TREASURY
NOTES, GINNIE MAE PASS-THROUGH MORTGAGE-BACKED SECURITIES(3) AND
GOVERNMENT-GUARANTEED BONDS issued by the Agency for International Development.
The manager increased the Fund's holdings of Ginnie Mae securities in the second
quarter in an attempt to benefit from higher prices caused by the political
situation discussed previously.
Looking forward, THE MANAGER MAINTAINS A POSITIVE OUTLOOK ON THE SHORT-TERM
U.S. GOVERNMENT MARKET. Although the manager thinks that further interest rate
increases by the Fed may be likely, the bond market appears to have already
incorporated that possibility into prices. We have recently seen signs that the
economy may be slowing, suggesting that the Fed's monetary policies may have
proven effective.
The recent weakness in the stock market has caused demand for high-quality
fixed-income securities to rise, potentially supporting prices near current
levels. While it is too soon to tell if the Fed's monetary policies will allow
the U.S. economy to slow to sustainable levels without entering a recession, the
manager thinks that short-term U.S. government securities continue to represent
a solid opportunity for investors seeking capital preservation and competitive
levels of income.
(3) A pass-through mortgage-backed security consisting of a pool of residential
mortgage loans. All payments of principal and interest are passed through
to investors each month.
FUND FACTS
FUND OBJECTIVE
To generate current income and preserve the value of its shareholders'
investment.
INVESTMENT ADVISER,
GOVERNMENT INCOME PORTFOLIO
Citibank, N.A.
COMMENCEMENT OF OPERATIONS
September 8, 1986
NET ASSETS AS OF 6/30/00
$27.0 million
DIVIDENDS
Paid monthly, if any
CAPITAL GAINS
Paid semi-annually, if any
BENCHMARKS
o Lipper Short U.S. Government Funds Average
o Lehman Brothers 1-3 Year U.S. Government Index*
* The Lehman Brothers 1-3 Year U.S. Government Index is a broad measure of
the performance of short-term government bonds.
3
<PAGE>
FUND PERFORMANCE
TOTAL RETURNS
ALL PERIODS ENDED JUNE 30, 2000 SIX ONE FIVE TEN
(See Note 7) MONTHS** YEAR YEARS* YEARS*
================================================================================
CitiFunds Short-Term U.S. Government
Income Portfolio without sales charge 2.96% 4.48% 4.85% 6.13%
Lipper Short U.S. Government Funds Average 2.98% 4.49% 4.94% 5.68%
Lehman Brothers 1-3 Year U.S.
Government Index 3.00% 4.86% 5.75% 6.48%
CitiFunds Short-Term U.S. Government
Income Portfolio with a maximum
sales charge of 1.50% 1.41% 2.92% 4.54% 5.97%
* Average Annual Total Return
** Not Annualized
30-Day SEC Yield 5.75%
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made ten years ago would have grown to $17,851,
including the maximum sales charge (as of 6/30/00). The graph shows how the Fund
compares to its benchmarks over the same period.
[The following table represents a line chart in the printed piece.]
Lehman Brothers
Lipper Short CitiFunds Short-Term 1-3 Year
U.S. Government U.S. Government U.S. Government
Funds Average Income Portfolio Index (unmanaged)
12/31/89 9850 10000 10000
1/31/90 9676 9985 10011
2/28/90 9687 10031 10063
3/31/90 9674 10061 10094
4/30/90 9516 10072 10118
5/31/90 9832 10222 10273
6/30/90 10001 10326 10381
7/31/90 10144 10447 10507
8/31/90 9997 10464 10544
9/30/90 10076 10541 10627
10/31/90 10211 10649 10745
11/30/90 10443 10766 10849
12/31/90 10628 10887 10977
1/31/91 10749 10986 11080
2/28/91 10810 11048 11151
3/31/91 10852 11109 11226
4/30/91 10960 11211 11334
5/31/91 11016 11275 11401
6/30/91 10970 11299 11444
7/31/91 11137 11408 11542
8/31/91 11401 11569 11700
9/30/91 11679 11704 11824
10/31/91 11789 11823 11952
11/30/91 11852 11935 12075
12/31/91 12094 12136 12258
1/31/92 12013 12064 12241
2/29/92 12069 12033 12278
3/31/92 12049 11963 12274
4/30/92 12119 12061 12386
5/31/92 12278 12188 12501
6/30/92 12406 12314 12627
7/31/92 12565 12462 12772
8/31/92 12648 12564 12876
9/30/92 12760 12667 12996
10/31/92 12640 12569 12922
11/30/92 12624 12549 12903
12/31/92 12766 12669 13023
1/31/93 12936 12829 13160
2/28/93 13064 12951 13264
3/31/93 13110 12992 13305
4/30/93 13190 13065 13386
5/31/93 13148 13049 13354
6/30/93 13293 13170 13453
7/31/93 13287 13206 13482
8/31/93 13481 13335 13594
9/30/93 13535 13373 13638
10/31/93 13565 13395 13668
11/30/93 13499 13357 13670
12/31/93 13542 13405 13725
1/31/94 13624 13496 13810
2/28/94 13473 13384 13727
3/31/94 13315 13246 13657
4/30/94 13215 13152 13605
5/31/94 13242 13128 13624
6/30/94 13240 13127 13658
7/31/94 13379 13233 13781
8/31/94 13405 13264 13826
9/30/94 13334 13217 13795
10/31/94 13346 13225 13826
11/30/94 13274 13172 13769
12/31/94 13310 13201 13795
1/31/95 13510 13365 13983
2/28/95 13696 13556 14173
3/31/95 13767 13627 14253
4/30/95 13910 13744 14381
5/31/95 14230 14015 14626
6/30/95 14302 14085 14705
7/31/95 14286 14102 14763
8/31/95 14388 14204 14851
9/30/95 14461 14285 14924
10/31/95 14578 14413 15048
11/30/95 14726 14551 15176
12/31/95 14838 14672 15291
1/31/96 14943 14777 15420
2/29/96 14819 14709 15360
3/31/96 14757 14692 15349
4/30/96 14724 14695 15364
5/31/96 14723 14712 15398
6/30/96 14814 14811 15510
7/31/96 14863 14860 15571
8/31/96 14895 14900 15628
9/30/96 15023 15028 15770
10/31/96 15198 15186 15949
11/30/96 15310 15304 16067
12/31/96 15286 15300 16070
1/31/97 15368 15372 16147
2/28/97 15401 15412 16186
3/31/97 15354 15384 16173
4/30/97 15486 15496 16305
5/31/97 15586 15587 16420
6/30/97 15685 15670 16533
7/31/97 15868 15833 16713
8/31/97 15870 15839 16730
9/30/97 15971 15949 16857
10/31/97 16106 16060 16982
11/30/97 16124 16096 17024
12/31/97 16220 16175 17138
1/31/98 16391 16312 17303
2/28/98 16392 16323 17318
3/31/98 16445 16379 17386
4/30/98 16512 16443 17469
5/31/98 16596 16527 17562
6/30/98 16663 16599 17653
7/31/98 16731 16666 17736
8/31/98 16938 16836 17952
9/30/98 17163 17041 18194
10/31/98 17214 17070 18282
11/30/98 17195 17067 18264
12/31/98 17246 17116 18333
1/31/99 17292 17198 18403
2/28/99 17196 17131 18320
3/31/99 17296 17232 18445
4/30/99 17361 17300 18502
5/31/99 17317 17284 18489
6/30/99 17346 17291 18544
7/31/99 17375 17313 18601
8/31/99 17404 17345 18653
9/30/99 17525 17454 18774
10/31/99 17563 17499 18825
11/30/99 17602 17545 18861
12/31/99 17604 17550 18878
1/31/00 17587 17562 18874
2/29/00 17701 17662 19002
3/31/00 17834 17802 19116
4/30/00 17873 17866 19164
5/31/00 17951 17896 19235
6/30/00 18124 18075 19445
The graph includes the initial sales charge of the Fund (no comparable charge
exists for the 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. Returns reflect
certain voluntary fee waivers. If the waivers were not in place, the Fund's
return would have been lower. The maximum sales charge of 1.50% went into effect
on January 4, 1999. Investors may not invest directly in an index.
4
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (Unaudited)
================================================================================
ASSETS:
Investment in Government Income Portfolio, at value (Note 1A) $27,210,045
Receivable from the Administrator 36,942
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Total assets 27,246,987
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LIABILITIES:
Payable for shares of beneficial interest repurchased 186,640
Dividends payable 45,881
Payable to affiliates--Shareholder Servicing Agents'
fees (Note 2B) 5,553
Accrued expenses and other liabilities 43,348
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Total liabilities 281,422
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NET ASSETS for 2,840,122 shares of beneficial
interest outstanding $26,965,565
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $30,458,074
Accumulated net realized loss (2,934,383)
Unrealized depreciation (626,849)
Undistributed net investment income 68,723
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Total $26,965,565
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COMPUTATION OF:
Net Asset Value, per share $9.49
Offering Price per share (Note 7) ($9.49 / 0.985) $9.63*
================================================================================
* Based upon single purchases of less than $50,000
See notes to financial statements
5
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CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
================================================================================
INVESTMENT INCOME (Note 1B):
Interest Income from Government Income Portfolio $908,874
Allocated Expenses from Government Income Portfolio (50,694)
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$858,180
EXPENSES:
Administrative fees (Note 2A) $ 35,675
Shareholder Servicing Agents fees (Note 2B) 35,675
Distribution fees (Note 3) 21,405
Transfer agent fees 17,500
Shareholder reports 15,224
Legal fees 10,189
Custody and fund accounting fees 8,165
Audit fees 7,340
Trustee fees 5,629
Miscellaneous 2,095
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Total expenses 158,897
Less aggregate amount waived by Administrator
and Distributor (Notes 2A and 3) (57,080)
Less Expenses Assumed by the Administrator (Note 6) (36,941)
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Net expenses 64,876
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Net investment income 793,304
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NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
GOVERNMENT INCOME PORTFOLIO:
Net realized loss (139,540)
Unrealized appreciation of investments 187,491
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Net realized and unrealized gain from
Government Income Portfolio 47,951
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $841,255
================================================================================
See notes to financial statements
6
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 793,304 $ 1,967,256
Net realized loss (139,540) (402,148)
Unrealized appreciation (depreciation) of investments 187,491 (717,277)
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Net increase in net assets resulting from operations 841,255 847,831
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (752,986) (1,953,508)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
Net proceeds from sale of shares 956,981 4,736,314
Net asset value of shares issued to shareholders
from reinvestment of dividends 752,986 1,901,282
Cost of shares repurchased (5,941,985) (22,456,702)
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Net decrease in net assets from transactions
in shares of beneficial interest (4,232,018) (15,819,106)
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NET DECREASE IN NET ASSETS (4,143,749) (16,924,783)
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NET ASSETS:
Beginning of period 31,109,314 48,034,097
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End of period (including undistributed
net investment income of $68,723 and
$28,405, respectively) $26,965,565 $31,109,314
================================================================================
See notes to financial statements
7
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CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 --------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
================================================================================
Net Asset Value,
beginning of period $ 9.46 $ 9.73 $ 9.61 $ 9.55 $ 9.78 $ 9.28
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Income From Operations:
Net investment income 0.258 0.473 0.473 0.504 0.516 0.543
Net realized and
unrealized gain (loss) 0.018 (0.276) 0.121 0.064 (0.232) 0.500
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Total from operations 0.276 0.197 0.594 0.568 0.284 1.043
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Less Distributions From:
Net investment income (0.246) (0.467) (0.474) (0.508) (0.514) (0.543)
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Total distributions (0.246) (0.467) (0.474) (0.508) (0.514) (0.543)
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Net Asset Value,
end of period $ 9.49 $ 9.46 $ 9.73 $ 9.61 $ 9.55 $ 9.78
================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000's omitted) $26,966 $31,109 $48,034 $20,237 $26,744 $35,525
Ratio of expenses to
average net assets (A) 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment
income to average
net assets 5.56%* 5.02% 4.98% 5.20% 5.31% 5.38%
Total return 2.96%** 2.07% 6.33% 6.11% 3.02% 11.48%
Note: If Agents of the Fund for the periods indicated and Agents of Government
Income Portfolio for the periods indicated had not voluntarily waived a portion
of their fees and assumed Fund expenses, the net investment income per share and
the ratios would have been as follows:
Net investment income
per share $ 0.253 $ 0.411 $ 0.413 $ 0.442 $ 0.460 $ 0.499
RATIOS:
Expenses to average
net assets (A) 1.46%* 1.37% 1.42% 1.43% 1.38% 1.23%
Net investment income to
average net assets 4.90%* 4.45% 4.36% 4.57% 4.73% 4.95%
================================================================================
(A) Includes the Fund's share of Government Income Portfolio allocated expenses
for the periods.
* Annualized
** Not Annualized
See notes to financial statements
8
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Short-Term U.S. Government Income
Portfolio (the "Fund") is a separate diversified series of CitiFunds Fixed
Income Trust (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end, management investment company. The Fund invests all of its
investable assets in Government Income Portfolio (the "Portfolio"), a management
investment company for which Citibank, N.A. ("Citibank") serves as Investment
Adviser. The value of such investment reflects the Fund's proportionate interest
(46.8% at June 30, 2000) in the net assets of the Portfolio. CFBDS, Inc.
("CFBDS") acts as the Fund's Administrator and Distributor. For the six months
ended June 30, 2000, CFBDS, acting as the distributor, received net commissions
paid by investors of $1,620 from the sale of fund shares (see Note 7). Citibank
also serves as Sub-Administrator and makes Fund shares available to customers as
Shareholder Servicing Agent. Citibank is a wholly-owned subsidiary of Citigroup
Inc.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosure in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are
as follows:
A. INVESTMENT VALUATION Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are
included elsewhere in this report.
B. INVESTMENT INCOME The Fund earns income, net of Portfolio expenses,
daily based on its investment in the Portfolio.
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1999, the Fund, for federal income tax
purposes, had a capital loss carryover of $2,886,806, of which $1,551,556 will
expire on December 31, 2002, $329,508 will expire on December 31, 2003, $367,655
will expire on December 31, 2004, $180,274 will expire on December 31, 2005, and
$457,813 will expire on December 31, 2007. Such capital loss carryover will
reduce the Fund's taxable income arising from future net realized capital gain
on investment transactions, if any, to the extent permitted by the Internal
Revenue Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax.
9
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (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. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. DISTRIBUTIONS Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations.
F. OTHER All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata, based on respective ownership
interests, among the Fund and the other investors in the Portfolio at the time
of such determination. Investment transactions are accounted for on a trade date
basis.
2. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services
Plan which provides that the Trust, on behalf of the Fund, may obtain the
services of an Administrator, one or more Shareholder Servicing Agents and other
Servicing Agents and may enter into agreements providing for the payment of fees
for such services. Under the Trust Administrative Services Plan, the aggregate
of the fees paid to the Administrator from the Fund, the fees paid to the
Shareholder Servicing Agents from the Fund under such Plan and the Basic
Distribution Fee paid from the Fund to the Distributor under the Distribution
Plan may not exceed 0.65% of the Fund's average daily net assets on an
annualized basis for the Fund's then current fiscal year.
A. ADMINISTRATIVE FEES Under the terms of an Administrative Services
Agreement, the administrative fees paid to the Administrator, as compensation
for overall administrative services and general office facilities, may not
exceed an annual rate of 0.25% of the Fund's average daily net assets. The
Administrative fees amounted to $35,675, all of which was voluntarily waived for
the six months ended June 30, 2000. Citibank acts as Sub-Administrator and
performs duties and receives compensation from CFBDS from time to time as agreed
to by CFBDS and Citibank. The Fund pays no compensation directly to any Trustee
or any officer who is affiliated with the Administrator, all of whom receive
remuneration for their services to the Fund from the Administrator or its
affiliates. Certain of the officers and a Trustee of the Fund are officers or
directors of the Administrator or its affiliates.
B. SHAREHOLDER SERVICING AGENTS' FEES The Trust, on behalf of the Fund, has
entered into shareholder servicing agency agreements with each Shareholder
Servicing Agent pursuant to which that Shareholder Servicing Agent acts as an
agent for its customers and provides other related services. For their services,
each Shareholder
10
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Servicing Agent receives fees from the Fund, which may be paid periodically,
which may not exceed, on an annualized basis, an amount equal to 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment is being made by investors for whom such Shareholder
Servicing Agent maintains a servicing relationship. Shareholder Servicing Agents
fees amounted to $35,675 for the six months ended June 30, 2000.
3. DISTRIBUTION FEES The Trust has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the
Fund compensates the Distributor at an annual rate not to exceed 0.15% of the
Fund's average daily net assets. The Distribution fees amounted to $21,405, all
of which was voluntarily waived for the six months ended June 30, 2000. The
Distributor may also receive an additional fee from the Fund not to exceed 0.05%
of the Fund's average daily net assets in anticipation of, or as reimbursement
for, advertising expenses incurred by the Distributor in connection with the
sale of shares of the Fund. No payment of such additional fees has been made
during the period. The Distributor voluntarily agreed to waive this fee through
June 30, 2000.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the six months ended June 30, 2000 aggregated $785,852 and
$5,675,342, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
Shares sold 101,575 491,458
Shares issued to shareholders
from reinvestment of dividends 79,736 198,280
Shares repurchased (629,386) (2,338,642)
--------------------------------------------------------------------------------
Net decrease (448,075) (1,648,904)
================================================================================
11
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
expenses of the Fund for the six months ended June 30, 2000, which amounted to
$36,941, to maintain a voluntary expense limitation of 0.80% of average daily
net assets. This voluntary expense limitation may be discontinued at any time.
7. SUBSEQUENT EVENTS Effective July 14, 2000, the front-end sales charge is
being waived.
12
<PAGE>
GOVERNMENT INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS June 30, 2000
(Unaudited)
PRINCIPAL
AMOUNT
ISSUER (000'S OMITTED) VALUE
--------------------------------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 30.7%
--------------------------------------------------------------------------------
6.50%, 2009 $ 136 $ 133,617
6.50%, 2011 2,562 2,499,707
6.50%, 2019 351 348,380
7.00%, 2008 641 630,044
7.00%, 2009 1,512 1,509,296
7.00%, 2013 4,034 3,997,817
7.00%, 2019 6,648 6,620,532
7.00%, 2020 1,502 1,494,009
7.25%, 2022 62 61,763
8.00%, 2006 77 77,365
8.00%, 2007 83 83,590
8.00%, 2017 103 104,610
8.00%, 2021 125 126,939
8.00%, 2022 71 71,689
9.50%, 2016 1 678
9.50%, 2017 30 31,648
9.50%, 2018 16 16,511
9.50%, 2019 25 26,098
9.50%, 2020 21 22,450
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION 17,856,743
-----------
U.S. & OTHER GOVERNMENT
OBLIGATIONS -- 63.0%
--------------------------------------------------------------------------------
Israel State U.S. Government
Guaranteed Notes,
6.05% due 8/15/00 8,640 8,633,434
5.70% due 2/15/03 5,000 4,852,700
6.125% due 3/15/03 4,300 4,213,613
-----------
17,699,747
-----------
United States Treasury Notes,
5.875% due 10/31/01 3,000 2,976,570
6.625% due 4/30/02 2,500 2,507,800
6.375% due 6/30/02 10,000 10,003,100
5.875% due 11/15/04 1,300 1,281,111
3.875% due 1/15/09 1,253 1,233,360
-----------
18,001,941
-----------
United States Treasury Notes,
Strip Principal,
due 08/15/01 1,000 931,180
-----------
TOTAL U.S. & OTHER
GOVERNMENT OBLIGATIONS 36,632,868
-----------
ISSUER VALUE
--------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS-- 5.3%
--------------------------------------------------------------------------------
First Union National Bank of
Florida Repurchase Agreement
6.55% due 7/3/00 proceeds
at maturity $3,060,670
(collateralized by $3,147,000
U.S. Treasury Note 5.50%
due 12/31/00 valued at
$3,131,265) $ 3,059,000
-----------
TOTAL INVESTMENTS
(Identified Cost
$58,231,279) 99.0% 57,548,611
OTHER ASSETS,
LESS LIABILITIES 1.0 582,321
------ -----------
NET ASSETS 100.0% $58,130,932
====== ===========
See notes to financial statements
13
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (Unaudited)
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $55,172,279) $54,489,611
Repurchase Agreement at value (1A) (Identified Cost, $3,059,000) 3,059,000
Cash 899
Interest receivable 599,054
--------------------------------------------------------------------------------
Total assets 58,148,564
--------------------------------------------------------------------------------
LIABILITIES:
Payable to affiliates-Investment advisory fees (Note 2) 17,632
--------------------------------------------------------------------------------
NET ASSETS $58,130,932
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $58,130,932
================================================================================
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
================================================================================
INVESTMENT INCOME (NOTE 1B): $1,892,252
EXPENSES:
Investment advisory fees (Note 2) $ 104,444
Administrative fees (Note 3) 14,921
Expense fees (Note 6) 1,061
--------------------------------------------------------------------------------
Total expenses 120,426
Less aggregate amount waived by the
Administrator (Note 3) (14,921)
--------------------------------------------------------------------------------
Net expenses 105,505
--------------------------------------------------------------------------------
Net investment income 1,786,747
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss from investment transactions (290,707)
Unrealized appreciation of investments 393,612
--------------------------------------------------------------------------------
Net realized and unrealized gain on investments 102,905
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,889,652
================================================================================
See notes to financial statements
14
<PAGE>
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 2000 DECEMBER 31,
(Unaudited) 1999
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 1,786,747 $ 3,549,138
Net realized loss on investment transactions (290,707) (717,522)
Unrealized appreciation (depreciation)
of investments 393,612 (1,091,773)
--------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 1,889,652 1,739,843
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions 2,912,503 24,866,329
Value of withdrawals (10,277,026) (47,147,153)
--------------------------------------------------------------------------------
Net decrease in net assets
from capital transactions (7,364,523) (22,280,824)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (5,474,871) (20,540,981)
--------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 63,605,803 84,146,784
--------------------------------------------------------------------------------
End of period $58,130,932 $63,605,803
================================================================================
See notes to financial statements
15
<PAGE>
GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $58,131 $63,606 $84,147 $61,298 $53,499 $53,145
Ratio of expenses to
average net assets 0.35%* 0.35% 0.35% 0.35% 0.35% 0.36%
Ratio of net investment
income to average
net assets 5.99%* 5.45% 5.49% 5.65% 5.75% 5.80%
Portfolio turnover 168% 201% 288% 126% 100% 284%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their
fees during the periods indicated, the ratios would have been as follows:
RATIOS:
Expenses to average
net assets 0.40%* 0.40% 0.40% 0.41% 0.40% 0.40%
Net investment income
to average net assets 5.94%* 5.40% 5.44% 5.59% 5.70% 5.76%
================================================================================
* Annualized
See notes to financial statements
16
<PAGE>
GOVERNMENT INCOME PORTFOLIO
Notes to Financial Statements (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES Government Income Portfolio (the
"Portfolio"), a separate series of The Premium Portfolios (the "Portfolio
Trust"), is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Adviser of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator.
Citibank is a wholly-owned subsidiary of Citigroup Inc.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by pricing services approved by the Board of Trustees, which take into
account appropriate factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, and other
market data, without exclusive reliance on quoted prices or exchange or
over-the-counter prices. Short-term obligations maturing in 60 days or less are
valued at amortized cost, which approximates market value. Securities, if any,
for which there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discounts
earned, adjusted for amortization of premium or discount on long-term debt
securities when required for U.S. federal income tax purposes. Gain and loss
from principal paydowns are recorded as income.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repur-
17
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
chase 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 0.01% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
G. FUTURES CONTRACTS The Portfolio may engage in futures transactions. The
Portfolio may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. Buying futures contracts tends to increase the Portfolio's
exposure to the underlying instrument. Selling futures contracts tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other Portfolio investments.
Upon entering into a futures contract, the Portfolio is required to deposit
with the broker an amount of cash or cash equivalents equal to a certain
percentage of the contract amount. This is known as the "initial margin".
Subsequent payments ("variation margin") are made or received by the Portfolio
each day, depending on the daily fluctuation of the value of the contract. The
daily changes in contract value are recorded as unrealized gains or losses and
the Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the settlement price established by the board of
trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities. No such instruments were
held at June 30, 2000.
18
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
H. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. INVESTMENT ADVISORY FEES The investment advisory fees paid to Citibank, as
compensation for overall investment management services, amounted to $104,444,
for the six months ended June 30, 2000. The investment advisory fees are
computed at the annual rate of 0.35% of the Portfolio's average daily net
assets.
3. ADMINISTRATIVE FEES Under the terms of an Administrative Services Agreement,
the administrative fees paid to the Administrator, as compensation for overall
administrative services and general office facilities, are computed at the
annual rate of 0.05% of the Portfolio's average daily net assets. The
administrative fees amounted to $14,921, all of which was voluntarily waived,
for the six months ended June 30, 2000. Citibank acts as Sub-Administrator and
performs certain duties and receives such compensation from SFG from time to
time as agreed to by SFG and Citibank. The Portfolio pays no compensation
directly to any Trustee or any officer who is affiliated with the Administrator,
all of whom receive remuneration for their services to the Portfolio from the
Administrator or its affiliates. Certain of the officers and a Trustee of the
Portfolio are officers or directors of the Administrator or its affiliates.
4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of U.S. Government
securities, other than short-term obligations, aggregated $99,512,731 and
$90,266,069, respectively, for the six months ended June 30, 2000.
5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at June 30, 2000, as
computed on a federal income tax basis, are as follows:
Aggregate cost $ 58,231,279
================================================================================
Gross unrealized appreciation $ 74,048
Gross unrealized depreciation (756,716)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (682,668)
================================================================================
6. EXPENSE FEES SFG has entered into an expense agreement with the Portfolio.
SFG has agreed to pay all of the ordinary operating expenses (excluding
interest, taxes, brokerage commissions, litigation costs or other extraordinary
costs or expenses) of the Portfolio, other than fees paid under the Advisory
Agreement and Administrative Services Agreement. The Agreement may be terminated
by either party upon not less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis,
accrued daily and paid monthly; provided, however, that such fee shall not
exceed the amount such that immediately after any such payment the aggregate
ordinary expenses of the Portfolio less expenses waived by the Administrator
would, on an annual basis, exceed an agreed upon rate, currently 0.35% of the
Portfolio's average daily net assets.
19
<PAGE>
GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
7. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on borrowings, if any, is charged to the specific Portfolio
executing the borrowing at the base rate of the bank. The line of credit
requires a quarterly payment of a commitment fee based on the average daily
unused portion of the line of credit. For the six months ended June 30, 2000,
the commitment fee allocated to the Portfolio was $90. Since the line of credit
was established, there have been no borrowings.
20
<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**
E. Kirby Warren
William S. Woods, Jr.***
SECRETARY
Robert Frenkel**
TREASURER
Linwood Downs*
* AFFILIATED PERSON OF ADMINISTRATOR AND DISTRIBUTOR
** AFFILIATED PERSON OF INVESTMENT ADVISER
*** TRUSTEE EMERITUS
INVESTMENT ADVISER
(of Government Income
Portfolio)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
This report is prepared for the information of shareholders of CitiFunds
California Tax Free Income Portfolio. It is authorized for distribution to
prospective investors only when preceded or accompanied by an effective
prospectus of CitiFunds California Tax Free Income Portfolio.
(C)2000 Citicorp (R) Printed on recycled paper CFS/USG/600
