-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SUUVcKPPm8wqRPYqzIrwAJK9eIFHzBsv+jNYf204ItxKq/hXo9wyWrBsadWFiShg sxPiJHf4meBdvqwpD4DBuQ== 0000930413-99-001001.txt : 19990820 0000930413-99-001001.hdr.sgml : 19990820 ACCESSION NUMBER: 0000930413-99-001001 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIFUNDS TRUST I CENTRAL INDEX KEY: 0000744388 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-04006 FILM NUMBER: 99695779 BUSINESS ADDRESS: STREET 1: 6ST JAMES ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174231679 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FUNDS I DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK GROWTH & INCOME FUND DATE OF NAME CHANGE: 19900429 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARKFUNDS MANAGED MUNICIPAL BOND TRUST DATE OF NAME CHANGE: 19860819 N-30B-2 1 SEMI ANNUAL REPORT Semi-Annual Report o June 30, 1999 CITIFUNDS [logo] Balanced Portfolio [Picture omitted] GROWTH WITH INCOME - -------------------------------------------------------------------------------- Investment products: Not FDIC Insured o No Bank Guarantee o May Lose Value - -------------------------------------------------------------------------------- TABLE OF CONTENTS Letter to Our Shareholders 1 - -------------------------------------------------------------------------------- Portfolio Environment and Outlook 2 - -------------------------------------------------------------------------------- Fund Facts 4 - -------------------------------------------------------------------------------- Portfolio Highlights 5 - -------------------------------------------------------------------------------- Fund Performance 6 - -------------------------------------------------------------------------------- CITIFUNDS BALANCED PORTFOLIO Statement of Assets and Liabilities 7 - -------------------------------------------------------------------------------- Statement of Operations 8 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 9 - -------------------------------------------------------------------------------- Financial Highlights 10 - -------------------------------------------------------------------------------- Notes to Financial Statements 12 - -------------------------------------------------------------------------------- BALANCED PORTFOLIO Portfolio of Investments 15 - -------------------------------------------------------------------------------- Statement of Assets and Liabilities 19 - -------------------------------------------------------------------------------- Statement of Operations 19 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 20 - -------------------------------------------------------------------------------- Financial Highlights 20 - -------------------------------------------------------------------------------- Notes to Financial Statements 21 - -------------------------------------------------------------------------------- LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: This semi-annual report covers the period from January 1, 1999 through June 30, 1999 for the CitiFundsSM Balanced Portfolio. Inside, the CitiFunds' investment manager, Citibank, N.A., discusses the market conditions it faced, the strategies it employed and its outlook for the future. Please note that effective May 17, the equity portion of the CitiFunds Balanced Portfolio is now being managed by Frances A. Root. The past six months have been a study in contrasts for investor sentiment and the financial markets. When the period began, investors were primarily concerned that economic weakness overseas might constrain growth in the United States. As a result, they favored stocks with predictable earnings growth and bonds. When the period ended, investors were mainly worried that the economy might be growing too fast, potentially awakening long-dormant inflationary pressures. In this environment, they avoided bonds and favored stocks that are sensitive to changes in the economic cycle. Thank you for your continued confidence and participation. Sincerely, /s/ Philip W. Coolidge - ---------------------- Philip W. Coolidge President July 23, 1999 1 PORTFOLIO ENVIRONMENT AND OUTLOOK THE FIRST SIX MONTHS OF 1999 SAW A CONTINUATION OF THE STRONG ECONOMIC CONDITIONS THAT HAVE PREVAILED IN THE UNITED STATES FOR MORE THAN SEVEN YEARS. Lower short-term interest rates adopted by central banks throughout the world in the fall of 1998 appear to have helped U.S. and overseas economies withstand further adverse effects from the global credit and currency crisis, which began in Asia in 1997 and spread to Russia and parts of Latin America in 1998. In the U.S., consumer spending remained high, unemployment was low and inflationary pressures continued to be virtually absent. Stocks and bonds provided disparate performance both among and within their individual markets in this stronger-than-expected economic environment. Abroad look at the reporting period shows that stocks generally advanced while bonds declined. However a closer look reveals dramatic differences in each markets' performance during the first and second quarters of 1999. DURING THE FIRST HALF OF THE REPORTING PERIOD, THE U.S. STOCK MARKET'S ADVANCE WAS REMARKABLY NARROW, LED BY A RELATIVELY SMALL NUMBER OF LARGE-CAP GROWTH AND TECHNOLOGY COMPANIES. Large-cap value stocks and virtually all sectors of the small-cap market with the exception of Internet stocks produced lackluster results. U.S. Treasury securities, which had rallied strongly last summer when the stock market and other bond market sectors declined sharply, gave back some of their gains. Other types of bonds did better, however, as investors shifted assets back into sectors they had previously avoided, including corporate bonds, mortgage-backed securities, asset-backed securities and foreign bonds. During the second half of the reporting period, investor sentiment shifted dramatically, causing a change in leadership within the financial markets. When evidence emerged that economies worldwide were stronger than many analysts expected, investors turned to stocks that tend to do well in an economic expansion. As a result, stock prices that had languished for several years began to show signs of renewed strength. Cyclical companies, such as energy and commodities producers, saw their stock prices rise. Shares of value companies, which have lower valuations in comparison with the overall market, began to outperform growth companies for the first time in several years. Small-cap stocks began a long-awaited recovery. In this environment, CitiFunds Balanced Portfolio provided highly competitive returns. The reporting period began with 60% of the portfolio's assets allocated to stocks and 40% of assets allocated to bonds. This allocation was designed to take advantage of the stock market's relative strength. In May, however, the Portfolio's stock positions were reduced to 55% and its fixed-income holdings were increased to 45%. Most of the assets that were shifted away from stocks were reinvested in cash instruments. This change was made after the stock market had posted strong gains and management found opportunities to earn profits in stocks that it no longer considered undervalued. Within the stock portion of the Portfolio, there were good results from investments in a number of industries and economic sectors. For example, top contributors to performance included Williams Companies, a diversified con- 2 glomerate with a strong telecommunications business; Raytheon, a major defense contractor; and Marsh & McLennan, the parent company of insurance, investment management and consulting businesses. Of course past performance is no guarantee of future results and the Portfolio's holdings may change at any time. In addition, the Portfolio received good results after exposure to capital goods was increased and raw materials and energy companies were added as global economies gained strength. The Portfolio also increased its holdings of financial services companies that management believes will benefit from globalization, demographic changes and the growth of the Internet. In the Portfolio's fixed-income segment, the Portfolio's sector allocations and average duration (i.e., a measure of bonds' sensitivity to changes in interest rates) were actively managed. As U.S. Treasury securities were punished and higher yielding areas of the bond market were rewarded over the first six months of the year, the Portfolio's exposure to mortgage-backed and asset-backed securities was increased. Conversely, the investment team substantially reduced the Portfolio's holdings of underperforming U.S. Treasury securities. Allocations to corporate bonds remained relatively unchanged. At the same time, the Portfolio's average duration was gradually reduced to the neutral range, enabling management to respond more quickly to higher yielding investment opportunities as they became available. LOOKING FORWARD, THE PORTFOLIO'S FIXED INCOME INVESTMENT TEAM EXPECTS ECONOMIC STRENGTH TO CONTINUE IN THE U.S. AND AROUND THE WORLD. While this may lead to modest interest-rate hikes by the Federal Reserve Board, financial markets appear to have already anticipated such a move. Accordingly, while management believes that bond yields are not likely to rise much further, they are monitoring the situation carefully. IN THE STOCK MARKET, THE BROAD-BASED MARKET TRENDS THAT BEGAN IN APRIL ARE EXPECTED TO CONTINUE. Historically, when cyclical companies begin to outperform growth companies, the change tends to persist for more than just a few weeks or months. In addition, the management team of the Portfolio's stocks has recently seen evidence that value-oriented stocks, such as the ones in which the stock portion of the portfolio invests, may be poised for improved performance. 3 FUND FACTS FUND OBJECTIVE To provide high current income by investing in a broad range of securities, to preserve capital and to provide growth potential with reduced risk. INVESTMENT ADVISER, DIVIDENDS BALANCED PORTFOLIO Paid quarterly, if any Citibank, N.A. COMMENCEMENT OF OPERATIONS CAPITAL GAINS October 19, 1990 Distributed semi-annually, if any NET ASSETS AS OF 6/30/99 BENCHMARKS Class A shares $234.4 million o -Standard and Poor's Barra Value Class B shares $2.3 million Index* o -Lehman Brothers Aggregate Bond Index** o -Lipper Balanced Funds Average * The Standard and Poor's Barra Value Index is an index of U.S. common stocks and is used as a gauge of general U.S. stock market performance. The S&P Barra Value Index represents the value of stocks in the S&P 500. ** The Lehman Brothers Aggregate Bond Index is a broad measure of the performance of taxable bonds in the U.S. market, with maturities of at least one year. 4 PORTFOLIO HIGHLIGHTS ================================================================================ TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 1999 (Unaudited) COMPANY, INDUSTRY % OF NET ASSETS Enron Corp., Consumer Services 2.1% - -------------------------------------------------------------------------------- Chase Manhattan Corp., Finance 2.0% - -------------------------------------------------------------------------------- General Electric Co., Basic Industries 1.9% - -------------------------------------------------------------------------------- American Home Products Corp., Consumer Durables 1.9% - -------------------------------------------------------------------------------- Mobil Corp., Producer Manufacturing 1.9% - -------------------------------------------------------------------------------- Pitney Bowes Inc., Finance 1.8% - -------------------------------------------------------------------------------- AT&T Corp., Consumer Services 1.8% - -------------------------------------------------------------------------------- SBC Communications Inc., Consumer Services 1.7% - -------------------------------------------------------------------------------- William Companies Inc., Consumer Services 1.7% - -------------------------------------------------------------------------------- Emerson Electric Co., Basic Industries 1.7% - -------------------------------------------------------------------------------- PORTFOLIO DIVERSIFICATION AS OF June 30, 1999 (Unaudited) [picture omitted] 5 FUND PERFORMANCE TOTAL RETURNS SINCE ALL PERIODS ENDED JUNE 30, 1999 SIX ONE FIVE 10/19/90 (Unaudited) MONTHS** YEAR YEARS* INCEPTION* ================================================================================ CitiFunds Balanced Portfolio (Class A) 8.31% 8.29% 13.72% 13.05% without sales charge Lipper Balanced Funds Average 5.57% 9.98% 16.15% 14.00%+ S&P Barra Value Index 13.96% 16.49% 23.63% 20.26%+ Lehman Brothers Aggregate Bond Index (1.37)% 3.13% 7.82% 8.40%+ CitiFunds Balanced Portfolio (Class A) with a maximum sales charge of 5.00% 2.89% 2.87% 12.56% 12.38% CitiFunds Balanced Portfolio (Class B) without deferred sales charge -- -- -- 7.71%#** Lipper Balanced Funds Average -- -- -- 5.57%++** S&P Barra Value Index -- -- -- 13.96%++** Lehman Aggregate Bond Index -- -- -- (1.37)%++** CitiFunds Balanced Portfolio (Class B) with a maximum deferred sales charge of 5.00% -- -- -- 2.33%#** * Average Annual Total Return ** Not Annualized + From 10/31/90 ++ From 12/31/98 # Commencement of Operations 1/4/99 Income Dividends per share Class A $0.194 Capital Gain Distributions Class A $0.023 Income Dividends per share Class B $0.173 Capital Gain Distributions Class B $0.023 GROWTH OF $10,000 INVESTMENT A $10,000 investment in the Fund made on 10/31/90 would have grown to $27,617 with sales charge (as of 6/30/99). The graph shows how the Fund compares to its benchmarks for the same period. [picture omitted] CitiFunds Balanced Portfolio Lipper Balanced Funds Average S&P Barra Value Index (unmanaged) Lehman Brothers Aggregate Bond Index (unmanaged) The graph includes the initial sales charge on the Fund (no comparable charge exists for other indices) and assumes all dividends and distributions are reinvested at Net Asset Value. Note: 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. and reflect certain voluntary fee waivers which may be terminated at anytime. If the waivers were not in place, the Fund's return would have been lower. The maximum sales charge of 5.00% went into effect on January 4, 1999. Investors may not invest directly in an index. 6 CITIFUNDS BALANCED PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ================================================================================ ASSETS: Investment in Balanced Portfolio, at value (Note 1A) $237,185,543 Receivable for shares of beneficial interest sold 137,637 - -------------------------------------------------------------------------------- Total assets 237,323,180 - -------------------------------------------------------------------------------- LIABILITIES: Payable for shares of beneficial interest repurchased 546,968 Accrued expenses and other liabilities 127,341 - -------------------------------------------------------------------------------- Total liabilities 674,309 - -------------------------------------------------------------------------------- NET ASSETS $236,648,871 ================================================================================ NET ASSETS CONSIST OF: Paid-in capital $208,097,177 Unrealized appreciation 9,625,906 Accumulated net realized gain 18,261,591 Undistributed net investment income 664,197 - -------------------------------------------------------------------------------- Total $236,648,871 ================================================================================ COMPUTATION OF CLASS A SHARES: Net Asset Value per share ($234,351,609/15,420,484 shares outstanding) $15.20 Offering Price per share ($15.20/0.95) $16.00* ================================================================================ CLASS B SHARES: Net Asset Value per share and offering price ($2,297,262/151,403 shares outstanding) $15.17** ================================================================================ * Based upon single purchases of less than $25,000. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges. See notes to financial statements 7 CITIFUNDS BALANCED PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited) ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income from Balanced Portfolio $ 3,062,790 Dividend Income from Balanced Portfolio 1,261,904 Allocated Expenses from Balanced Portfolio (649,296) - -------------------------------------------------------------------------------- $ 3,675,398 - -------------------------------------------------------------------------------- EXPENSES: Administrative fees (Note 2) 294,324 Service fees Class A (Note 3) 292,948 Service fees Class B (Note 3) 5,505 Custody and fund accounting fees 32,666 Shareholder reports 14,394 Trustee fees 7,424 Audit fees 6,725 Legal fees 6,000 Transfer agent fees 1,000 Other 1,924 - -------------------------------------------------------------------------------- Total expenses 662,910 Less aggregate amount waived by Administrator (Note 2) (107,206) - -------------------------------------------------------------------------------- Net expenses 555,704 - -------------------------------------------------------------------------------- Net investment income 3,119,694 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM BALANCED PORTFOLIO: Net realized gain 19,505,042 Unrealized depreciation on investments (3,723,797) - -------------------------------------------------------------------------------- Net realized and unrealized gain from Balanced Portfolio 15,781,245 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,900,939 ================================================================================ See notes to financial statements 8 CITIFUNDS BALANCED PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED JUNE 30,1999 YEAR ENDED (UNAUDITED) DECEMBER 31,1998 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 3,119,694 $ 6,041,370 Net realized gain 19,505,042 26,888,409 Unrealized depreciation on investments (3,723,797) (15,478,163) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 18,900,939 17,451,616 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A (3,046,010) (5,439,336) Net investment income Class B (17,618) -- Net realized gain Class A (348,563) (34,018,101) Net realized gain Class B (3,267) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions to shareholders (3,415,458) (39,457,437) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 5): CLASS A Net proceeds from sale of shares 5,168,930 23,637,486 Net asset value of shares issued to shareholders from reinvestment of distributions 3,392,662 39,433,879 Cost of shares repurchased (25,989,230) (31,497,141) - -------------------------------------------------------------------------------- Total Class A (17,427,638) 31,574,224 - -------------------------------------------------------------------------------- CLASS B* Net proceeds from sale of shares 2,303,045 -- Net asset value of shares issued to shareholders from reinvestment of distributions 18,624 -- Cost of shares repurchased (89,507) -- - -------------------------------------------------------------------------------- Total Class B 2,232,162 -- - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest (15,195,476) 31,574,224 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 290,005 9,568,403 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 236,358,866 226,790,463 - -------------------------------------------------------------------------------- End of period (including undistributed net investment income of $664,197 and $608,131, respectively) $236,648,871 $236,358,866 ================================================================================ *January 4, 1999 (Commencement of Operations) to June 30, 1999. See notes to financial statements 9 CITIFUNDS BALANCED PORTFOLIO FINANCIAL HIGHLIGHTS
CLASS A --------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31, ------------------------------------------------- (Unaudited) 1998 1997 1996 1995 1994+ ========================================================================================= Net Asset Value, beginning of period $14.24 $15.77 $15.61 $15.71 $13.52 $14.24 - ----------------------------------------------------------------------------------------- Income From Operations: Net investment income 0.201 0.420 0.421 0.497 0.486 0.399 Net realized and unrealized gain (loss) 0.976 0.795 2.726 0.680 2.540 (0.695) - ----------------------------------------------------------------------------------------- Total from operations 1.177 1.215 3.147 1.177 3.026 (0.296) - ----------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.194) (0.380) (0.421) (0.497) (0.495) (0.394) Net realized gain (0.023) (2.365) (2.566) (0.780) (0.341) (0.030) - ----------------------------------------------------------------------------------------- Total distributions (0.217) (2.745) (2.987) (1.277) (0.836) (0.424) - ----------------------------------------------------------------------------------------- Net Asset Value, end of period $15.20 $14.24 $15.77 $15.61 $15.71 $13.52 ========================================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $234,352 $236,359 $226,790 $230,382 $246,002 $227,309 Ratio of expenses to average net assets (A) 1.02%* 1.02% 1.02% 1.02% 1.02% 1.02% Ratio of net investment income to average net assets 2.66%* 2.61% 2.44% 3.04% 3.21% 2.82% Portfolio turnover (B) -- -- -- -- -- 29% Total return (C) 8.31%** 7.83% 20.85% 7.59% 22.66% (2.06)% Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net investment income per share and the ratios would have been as follows: Net investment income $0.194 $0.390 $0.387 $0.464 $0.463 $0.378 RATIOS: Expenses to average net assets 1.11%(A)* 1.22%(A) 1.22%(A) 1.22%(A) 1.17%(A) 1.17%(A) Net investment income to average net assets 2.57%* 2.41% 2.24% 2.84% 3.06% 2.67% =========================================================================================
* Annualized ** Not Annualized (A) - Includes the Fund's share of Balanced Portfolio allocated expenses for the periods indicated. (B) -Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in securities. The portfolio turnover rate for the period since the Fund transferred all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. (C) Total return does not include the maximum sales charge of 5.00% effective January 4, 1999. + On May 1, 1994 the Fund began investing all of its investable assets in Balanced Portfolio. See notes to financial statements 10 CITIFUNDS BALANCED PORTFOLIO FINANCIAL HIGHLIGHTS CLASS B ------------------ JANUARY 4, 1999 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1999 (Unaudited) ================================================================================ Net Asset Value, beginning of period $14.28 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.133 Net realized and unrealized gain (loss) 0.953 - -------------------------------------------------------------------------------- Total from operations 1.086 - -------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.173) Net realized gain (0.023) - -------------------------------------------------------------------------------- Total distributions (0.196) - -------------------------------------------------------------------------------- Net Asset Value, end of period $15.17 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $2,297 Ratio of expenses to average net assets (A) 1.77%* Ratio of net investment income to average net assets 1.91%* Total return 7.71%** Note: If Agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net investment income per share and the ratios would have been as follows: Net investment income $0.126 RATIOS: Expenses to average net assets 1.86%* Net investment income to average net assets 1.82%* ================================================================================ * Annualized ** Not Annualized (A) Includes the Fund's share of Balanced Portfolio allocated expenses for the periods indicated. See notes to financial statements 11 CITIFUNDS BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Balanced Portfolio (the "Fund") is a separate diversified series of CitiFunds Trust I (the "Trust"), 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 Fund invests all of its investable assets in Balanced 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 (89.2% at June 30, 1999) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's Administrator and Distributor. Citibank also serves as Sub-Administrator and makes Fund shares available to customers as Shareholder Servicing Agent. Citibank is a wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers Group, Inc. which was completed on October 8, 1998. The Fund offers Class A shares and Class B shares. The Fund commenced its public offering of Class B shares on January 4, 1999. Class A shares have a front-end, or initial, sales charge effective January 4, 1999. This sales charge may be reduced or eliminated in certain circumstances. Class B shares have no front-end sales charge, pay a higher ongoing distribution fee than Class A shares and are subject to a deferred sales charge if sold within five years of purchase. Class B shares automatically convert into Class A shares after eight years. Expenses of the Fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of the net assets of the Fund, if the Fund were liquidated. Class A shares have lower expenses than Class B shares. The financial statements of the Portfolio, including the portfolio of investments, are contained elsewhere in this report and should be read in conjunction with the 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 disclosures 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 invest- 12 CITIFUNDS BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) ment transactions. Accordingly, no provision for federal income or excise tax is necessary. 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, realized and unrealized gain and loss of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and the other investors in the Portfolio at the time of such determination. Investment transactions are accounted for on the trade date basis. Realized gains and losses are determined on the identified cost basis. 2. 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 $294,324, of which $107,206 was voluntarily waived for the six months ended June 30, 1999. Citibank acts as Sub-Administrator and performs certain 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 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. 3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class B shares, which have been adopted in accordance with Rule 12b-1 under the 1940 Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average daily net assets represented by Class A shares of the Fund. The Service fees for Class A shares amounted to $292,948 for the six months ended June 30, 1999. Under the Class B Service Plan, the Fund may pay a combined monthly distribution and service fee at an annual 13 CITIFUNDS BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) rate not to exceed 1.00% of the average daily net assets represented by Class B shares of the Fund. The Service fees for Class B shares amounted to $5,505 for the period ended June 30, 1999. These fees may be used to make payments to the Distributor for distribution services and to others as compensation for the sale of shares of the applicable class of the Fund, for advertising, marketing or other promotional activity, and for preparation, printing and distribution of prospectuses, statements of additional information and reports for recipients other than regulators and existing shareholders. The Fund may also make payments to the Distributor and others for providing personal service of the maintenance of shareholder accounts. 4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio for the six months ended June 30, 1999 aggregated $1,917,621 and $19,849,455, 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, 1999 DECEMBER 31, (Unaudited) 1998 ================================================================================ CLASS A Shares sold 352,093 1,473,554 Shares issued to shareholders from reinvestment of distribution 229,011 2,695,888 Shares repurchased (1,756,119) (1,950,608) - -------------------------------------------------------------------------------- Class A net increase (decrease) (1,175,015) 2,218,834 ================================================================================ CLASS B* Shares sold 156,178 -- Shares issued to shareholders from reinvestment of distribution 1,253 -- Shares repurchased (6,028) -- - -------------------------------------------------------------------------------- Class B net increase 151,403 -- ================================================================================ *January 4, 1999 (Commencement of Operations) to June 30, 1999. 6. SUBSEQUENT EVENT At a Special Meeting on July 30, 1999, the shareholders of the Fund approved certain proposals to allow the assets of the Fund to be invested in one or more investment companies. Additionally, the shareholders approved a Management Agreement with Citibank, to provide administrative services. These new agreements simplify and terminate the Fund's existing Administration Service Agreement. Effective August 1, 1999 the Management fees may not exceed, on an annual basis, an amount equal to 0.70% of the average daily net assets of the Fund. 14 BALANCED PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 1999 (Unaudited) ISSUER SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS -- 61.3% - -------------------------------------------------------------------------------- BASIC INDUSTRIES -- 15.6% - -------------------------------------------------------------------------------- Abbott Labs 72,000 $ 3,276,000 Alcoa Inc. 56,000 3,465,000 Bristol Meyers Squibb Co. 59,000 4,155,813 Dow Chemical Co. 14,000 1,776,250 E.I. du Pont De Nemours & Co. 50,000 3,415,625 Emerson Electric Co. 70,000 4,401,250 General Electric Co. 45,000 5,085,000 Honeywell Inc. 34,500 3,997,688 International Paper Co. 64,000 3,232,000 Pharmacia & Upjohn Inc. 63,000 3,579,188 Union Pacific Corp. 60,000 3,498,750 Unumprovident Corp. 28,000 1,533,000 ---------- 41,415,564 ---------- CONSUMER DURABLES -- 6.1% - -------------------------------------------------------------------------------- American Home Products Corp. 86,000 4,945,000 Dana Corp. 60,000 2,763,750 Delphi Automotive Systems Corp. 12,580 233,516 Ford Motor Co. 35,000 1,975,312 General Motors Corp. 18,000 1,188,000 Goodyear Tire and Rubber 30,000 1,764,375 Masco Corp. 115,000 3,320,625 ---------- 16,190,578 ---------- CONSUMER NON-DURABLES -- 3.2% - -------------------------------------------------------------------------------- Avon Products Inc. 59,000 3,274,500 H.J. Heinz Co. 35,000 1,754,375 Pepsico Inc. 95,000 3,675,312 ---------- 8,704,187 ---------- CONSUMER SERVICES-- 13.3% - -------------------------------------------------------------------------------- AT&T Corp. 85,000 4,744,062 Bell Atlantic Corp. 48,200 3,151,075 Duke Energy Co. 75,000 4,078,125 Enron Corp. 69,000 5,640,750 McGraw HillCompanies Inc. 43,000 2,319,312 SBC Communications Inc. 78,000 4,524,000 Sprint Corp. 60,000 3,168,750 Unicom Corp. 85,000 3,277,812 Williams Companies Inc. 105,000 4,469,063 ---------- 35,372,949 ---------- FINANCE -- 14.2% - -------------------------------------------------------------------------------- Bank One Corp. 70,000 4,169,375 BankAmerica Corp. 42,600 3,123,112 Chase Manhattan Corp. 60,000 5,197,500 Chubb Corp. 45,000 3,127,500 Cigna Corp. 42,500 3,782,500 Hartford Financial Services Group 59,000 3,440,438 J. P. Morgan Co. Inc. 22,000 3,091,000 Marsh & McLennan Companies Inc. 48,000 3,624,000 Mellon Bank Corp. 90,000 3,273,750 Pitney Bowes Inc. 75,000 4,818,750 ---------- 37,647,925 ---------- PRODUCER MANUFACTURING -- 6.2% - -------------------------------------------------------------------------------- BP Amoco PLC 29,000 3,146,500 Chevron Corp. 33,000 3,141,188 Exxon Corp. 19,200 1,480,800 Halliburton Co. 46,100 2,086,025 Mobil Corp. 49,700 4,920,300 Royal Dutch Petroleum Co. 27,000 1,626,750 ---------- 16,401,563 ---------- MISCELLANEOUS-- 2.7% - -------------------------------------------------------------------------------- Raytheon Co. 43,570 3,066,239 Xerox Corp. 70,000 4,134,375 ---------- 7,200,614 ---------- Total Common Stock (Identified Cost $151,263,115) 162,933,380 =========== 15 BALANCED PORTFOLIO PORTFOLIO OF INVESTMENTS JUNE 30, 1999 (Unaudited) PRINCIPAL ISSUER AMOUNT VALUE - -------------------------------------------------------------------------------- FIXED INCOME -- 44.5% - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES -- 11.2% - -------------------------------------------------------------------------------- Aames Mortgage Trust 6.59% due 6/15/24 $1,040,000 $1,044,170 Aircraft Financial Trust 8.00% due 5/15/24 1,500,000 1,426,406 Asset Securitization Corp. Series 95 7.10% due 8/13/29 508,489 513,253 7.384% due 8/13/29 2,500,000 2,562,200 Asset Securitization Corp. Series 97 6.85% due 2/14/41 600,000 587,982 Commercial Mortgage Acceptance Corp. 5.80% due 5/15/06 520,075 507,177 Contimortgage Home Equity Loan 6.13% due 3/15/13 1,100,000 1,095,523 Criimi Mae Commercial Mortgage 7.00% due 11/2/11 600,000 460,219 Ford Credit Auto Owner Trust 6.16% due 8/15/03 2,000,000 1,982,500 GMAC Commercial Mortgage 6.42% due 8/15/08 1,100,000 1,063,227 6.83% due 12/15/03 1,634,232 1,650,362 Green Tree Financial Corp. 6.71% due 8/15/29 1,050,000 1,018,342 8.05% due 10/15/27 3,500,000 3,557,960 IMC Home Equity Loan 6.16% due 5/20/14 2,000,000 1,999,340 J. P. Morgan Co. Inc. 6.373% due 1/15/30 666,859 661,130 Lehman Brothers/First Union 6.479% due 3/18/04 798,300 796,120 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 1,297,406 1,312,689 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 1,105,000 1,101,862 Nomura Asset Securitization Corp. 8.15% due 3/04/20 2,000,000 2,105,680 PNC Mortgage Securitization Corp. 6.392% due 9/25/13 1,610 1,537 Peco Energy Transportation Trust 6.05% due 3/01/09 1,100,000 1,053,591 Residential Funding Mortgage Securitization Corp. 7.00% due 2/25/08 432,799 433,609 Sears Credit Account Master Trust II 5.25% due 10/16/08 1,110,000 1,060,050 Structured Asset Securities Corp. 6.79% due 6/12/04 1,827,180 1,843,971 ----------- 29,838,900 ----------- DOMESTIC CORPORATIONS -- 10.7% - -------------------------------------------------------------------------------- Ahold Financial USA Inc. 6.875% due 5/01/29 1,130,000 1,045,126 American Financial Group Inc. 7.125% due 4/15/09 1,045,000 972,341 Associates Corp. 6.95% due 11/01/18 1,365,000 1,315,178 BB&T Corp. 6.375% due 6/30/05 1,470,000 1,432,633 Bank One Corp. 5.625% due 2/17/04 1,050,000 1,004,346 Century Telecommunications Enterprises Inc. 6.30% due 1/15/08 1,000,000 952,180 Conoco Inc. 5.90% due 4/15/04 1,150,000 1,122,147 Conseco Inc. 6.40% due 6/15/01 850,000 832,720 Dayton Hudson Corp. 6.65% due 8/01/28 1,120,000 1,021,787 Equitable Life Assurance 6.95% due 12/01/05 1,050,000 1,047,984 Ford Motor Co. 6.625% due 10/01/28 1,285,000 1,156,731 General Motors Acceptance Corp. 6.15% due 4/05/07 1,040,000 990,319 Household Financial Corp. 6.50% due 11/15/08 1,050,000 1,001,186 Imperial TOB Overseas 7.125% due 4/01/09 1,070,000 1,020,769 Knight Ridder Inc. 6.875% due 3/15/29 770,000 712,554 7.15% due 11/01/27 170,000 163,333 Lehman Brothers Holdings Inc. 6.40% due 8/30/00 1,030,000 1,031,082 7.00% due 5/15/03 830,000 823,527 MCI Communications Corp. 6.50% due 4/15/10 1,425,000 1,365,720 16 BALANCED PORTFOLIO PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999 (Unaudited) PRINCIPAL ISSUER AMOUNT VALUE - -------------------------------------------------------------------------------- Mattel Inc. 6.00% due 7/15/03 $ 765,000 $ 745,734 Merita Bank Plc 6.50% due 4/01/09 1,030,000 975,863 Morgan Stanley Group Inc. 5.625% due 1/20/04 1,150,000 1,108,416 National Rural Utilities 6.20% due 2/01/08 1,260,000 1,214,905 Nordstrom Inc. 5.625% due 1/15/09 880,000 799,515 Petroleum Geographical Services 6.625% due 3/30/08 735,000 691,878 Popular Inc. 6.20% due 4/30/01 725,000 718,272 6.875% due 6/15/01 690,000 689,427 Provident Companies Inc. 7.00% due 7/15/18 525,000 502,231 Raytheon Co. 6.30% due 3/15/05 1,000,000 981,450 TPSA Financial BV 7.75% due 12/10/08 1,075,000 1,043,677 ---------- 28,483,031 ---------- MORTGAGE OBLIGATIONS -- 10.7% - -------------------------------------------------------------------------------- MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 7.1% - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 6.00% due 12/31/99 1,000,000 940,470 6.25% due 6/15/24 860,000 837,194 7.00% due 12/31/99 2,000,000 2,001,250 8.50% due 6/01/01 6,685 6,767 9.50% due 2/01/01 3,382 3,426 Federal National Mortgage Association 5.50% due 12/31/99 5,000,000 4,559,375 6.50% due 12/01/99 2,000,000 1,970,620 6.50% due 12/01/99 1,840,000 1,775,011 6.50% due 05/01/29 2,467,231 2,380,088 7.349% due 8/17/21 600,000 611,208 7.50% due 10/01/25 120,157 121,358 7.50% due 11/01/25 1,687,981 1,704,861 7.50% due 7/01/29 2,000,000 2,022,500 9.00% due 11/01/01 5,922 6,074 ---------- 18,940,202 ---------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.6% - -------------------------------------------------------------------------------- 6.50% due 12/15/99 $ 1,100,000 $ 1,057,892 6.50% due 12/31/99 2,000,000 1,918,750 7.00% due 12/31/99 4,300,000 4,242,208 7.00% due 2/15/24 1,088,443 1,077,221 7.25% due 10/16/22 1,259,676 1,265,975 ---------- 9,562,046 ---------- TOTAL MORTGAGE OBLIGATIONS 28,502,248 ---------- YANKEE BONDS -- 1.1% - -------------------------------------------------------------------------------- Corporacion Andina de Fomento 7.75% due 3/01/04 1,050,000 1,022,788 Korea Development Bank 7.128% due 4/22/04 1,030,000 1,005,646 Manitoba Province, Canada 5.50% due 10/01/08 1,050,000 968,394 --------- 2,996,828 --------- UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS -- 10.8% - -------------------------------------------------------------------------------- United States Treasury Bonds -- 4.8% - -------------------------------------------------------------------------------- 8.125% due 8/15/19 5,300,000 6,401,393 3.625% due 4/15/28 996,510 940,296 5.25% due 11/15/28 500,000 443,205 3.875% due 4/15/29 5,053,750 4,987,420 ---------- 12,772,314 ---------- United States Treasury Notes -- 3.9% - -------------------------------------------------------------------------------- 5.75% due 11/30/02 550,000 551,116 4.25% due 11/15/03 2,000,000 1,888,440 5.875% due 2/15/04 2,125,000 2,138,621 6.875% due 5/15/06 560,000 589,574 6.625% due 5/15/07 1,300,000 1,353,833 3.875% due 1/15/09 1,420,000 1,403,130 5.50% due 5/15/09 2,390,000 2,334,719 ---------- 10,259,433 ---------- 17 BALANCED PORTFOLIO PORTFOLIO OF INVESTMENTS (Continued) June 30, 1999 (Unaudited) PRINCIPAL ISSUER AMOUNT VALUE - -------------------------------------------------------------------------------- United States Agency Obligations-- 2.1% - -------------------------------------------------------------------------------- Federal National Mortgage Association 5.49% due 8/18/00 $ 3,800,000 $ 3,794,072 Tennessee Valley Authority 5.88% due 4/01/36 1,750,000 1,715,945 ----------- 5,510,017 ----------- Total United States Government & Agency Obligations 28,541,764 ----------- Total Fixed Income (Identified Cost $121,209,260) 118,362,771 ----------- SHORT-TERM OBLIGATIONS AT AMORTIZED COST -- 0.1% United States Treasury Bills 4.59% due 9/23/99 Total Short-Term Obligations (Identified Cost $158,286) 158,298 ----------- Total Investments (Identified Cost $272,630,661) 105.9% $ 281,454,449 Other Assets,Less Liabilities (5.9) (15,634,241) ---- ----------- NET ASSETS 100.0% $ 265,820,208 ===== ============= FUTURES CONTRACTS - -------------------------------------------------------------------------------- Futures contracts which were open at June 30, 1999 are as follows: Aggregate Number of Face Value Expiration Unrealized Contracts Of Contracts Date Gain/loss - -------------------------------------------------------------------------------- U. S. T-notes 2Yr 9/99 Sept. (Long) 20 $2,000,000 1999 $4,537 U. S. T-notes 10Yr 9/99 Sept. (Short) (65) (6,500,000) 1999 ($77,675) U. S. T-bond 9/99 Sept. (Short) (25) (2,500,000) 1999 ($9,563) -------- ($82,701) ======== See notes to financial statements 18 Balanced Portfolio STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1999 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments at value (Note 1A) (Identified Cost, $272,630,661) $281,454,449 Cash 7,746 Receivable for investments sold 9,790,437 Dividends and interest receivable 1,462,302 - -------------------------------------------------------------------------------- Total assets 292,714,934 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 26,623,445 Payable to affiliates-Investment advisory fees (Note 2) 42,599 Accrued expenses and other liabilities 159,463 Payable for daily variation on futures contracts 69,219 - -------------------------------------------------------------------------------- Total liabilities 26,894,726 - -------------------------------------------------------------------------------- NET ASSETS $265,820,208 ================================================================================ REPRESENTED BY: Paid-in capital for beneficial interests $265,820,208 ================================================================================ BALANCED PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $3,439,858 Dividends 1,417,791 - -------------------------------------------------------------------------------- $4,857,649 - -------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2) 530,594 Custody and fund accounting fees 93,677 Administrative fees (Note 3) 66,324 Legal fees 15,000 Audit fees 13,750 Trustee fees 3,954 Other 6,282 - -------------------------------------------------------------------------------- Total expenses 729,581 - -------------------------------------------------------------------------------- Net investment income 4,128,068 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investment transactions 21,520,534 Net realized gain from futures contracts 387,719 Unrealized depreciation of investments and futures contracts (4,199,546) - -------------------------------------------------------------------------------- Net realized and unrealized gain on investments and futures contracts 17,708,707 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,836,775 ================================================================================ See notes to financial statements 19 BALANCED PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, (Unaudited) 1998 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 4,128,068 $ 7,943,643 Net realized gain from investment transactions and futures contracts 21,908,253 29,726,471 Unrealized depreciation of investments and futures contracts (4,199,546) (17,148,033) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 21,836,775 20,522,081 - -------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: Proceeds from contributions 5,082,500 17,030,280 Value of withdrawals (26,222,931) (23,622,833) - -------------------------------------------------------------------------------- Net decrease in net assets from capital transactions (21,140,431) (6,592,553) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 696,344 13,929,528 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 265,123,864 251,194,336 - -------------------------------------------------------------------------------- End of period $ 265,820,208 $ 265,123,864 ================================================================================ BALANCED PORTFOLIO FINANCIAL HIGHLIGHTS
SIX MONTHS MAY 1, 1994 ENDED (COMMENCEMENT JUNE 30, YEAR ENDED DECEMBER 31, OF OPERATIONS) TO 1999 ------------------------------------------ DECEMBER 31, (Unaudited) 1998 1997 1996 1995 1994 ====================================================================================================== Ratios/Supplemental Data: Net Assets, end of period (000's omitted) $265,820 $265,124 $251,194 $247,526 $251,519 $228,948 Ratio of expenses to average net assets 0.55%* 0.55% 0.55% 0.55% 0.53% 0.51%* Ratio of net investment income to average net assets 3.11%* 3.08% 2.90% 3.50% 3.69% 3.53%* Portfolio turnover 88% 133% 134% 241% 210% 105% ====================================================================================================== * Annualized
See notes to financial statements 20 BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Balanced Portfolio (the "Portfolio"), a separate series of The Premium Portfolios (the "Portfolio Trust"), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. The Investment Adviser of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Administrator. Citibank is a wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers Group, Inc. which was completed on October 8, 1998. 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 Equity securities listed on securities exchanges or reported through the NASDAQ system are valued at last sale prices. Unlisted securities or listed securities for which last sales prices are not available are valued at last quoted bid prices. Debt securities (other than short-term obligations maturing in sixty 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 sixty days or less are valued at amortized cost, which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees. B. INCOME Interest income consists of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for federal income tax purposes. Gain and loss from principal paydowns are recorded as interest income. Dividend income is recorded on the ex-dividend date. C. U.S. FEDERAL TAXES The Portfolio is considered a partnership under the U.S. Internal Revenue Code. Accordingly, no provision for federal income or excise tax 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 21 BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 agreement investments. Additionally, procedures have been established by the Portfolio to monitor, on a daily basis, the market value of the repurchase agreement's underlying investments to ensure the existence of a proper level of collateral. F. TBA PURCHASE COMMITMENTS The Portfolio enters into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The Portfolio holds, and maintains until the settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under Note 1A. Although the Portfolio will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio, the Portfolio may dispose of a commitment prior to settlement if the Portfolio's Adviser deems it appropriate to do so. G. FUTURES CONTRACTS The Portfolio may engage in futures transactions. The Portfolio may use futures contracts in order to protect the Portfolio from fluctuation in interest rates without actually buying or selling debt securities, or to manage the effective to maturity or duration of fixed income securities in the Portfolio in an effort to reduce potential losses or enhance potential gains. The underlying value of a futures contract is incorporated within unrealized appreciation/depreciation in the Portfolio of Investments under the caption "Futures Contracts". 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 22 BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 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. 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 advisory fee paid to Citibank, amounted to $530,594 for the six months ended June 30, 1999. Advisory fees are computed at the annual rate of 0.40% of the Portfolio's average daily net assets less the aggregate amount (if any) payable by the Portfolio Trust pursuant to the Sub-Adviser Agreement with the Subadviser. Effective May, 1999 Citibank delegated the daily advisory of the Equity portion of the Portfolio to SSBC Fund Management, Inc., an affiliate of Citibank (the "Subadviser"). The Portfolio pays the Subadviser the following fees, which are accrued daily and payable monthly and are at the annual rates equal to a percentage of the aggregate assets of the Portfolio allocated to the Subadviser: 0.65% on the first $10 million, 0.50% on the next $10 million, 0.40% on the next $10 million, 0.30% on remaining assets. The advisory fees paid to the Subadviser amounted to $65,904 for the period ended June 30, 1999. 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, is computed at an annual rate of 0.05% of the Portfolio's average daily net assets. The Administrative fees amounted to $66,324 for the six months ended June 30, 1999. Citibank acts as Sub-Administrator and performs certain duties and receives compensation from SFG from time to time as agreed to by SFG and Citibank. The Portfolio pays no compensation directly to 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. 23 BALANCED PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 4. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other than short-term obligations, aggregated $262,542,663 and $238,574,503 respectively, for the six months ended June 30, 1999. Purchases and sales of U.S. Government securities aggregated to $92,411,000 and $97,697,440, respectively. 5. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at June 30, 1999, as computed on a federal income tax basis, are as follows: Aggregate cost $272,630,661 ================================================================================ Gross unrealized appreciation $ 15,600,693 Gross unrealized depreciation (6,776,905) - -------------------------------------------------------------------------------- Net unrealized appreciation $ 8,823,788 ================================================================================ 6. LINE OF CREDIT The Portfolio, along with the other Portfolios in the CitiFunds Family, has entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $75 million for temporary or emergency purposes. Interest on the borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the six months ended June 30, 1999, the commitment fee allocated to the Portfolio was $337. Since the line of credit was established, there have been no borrowings. 24 TRUSTEES AND OFFICERS C. Oscar Morong, Jr., Chairman Philip W. Coolidge*, President Elliott J. Berv Mark T. Finn Riley C. Gilley Diana R. Harrington Susan B. Kerley Heath B. McLendon** Walter E. Robb, III E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *AFFILIATED PERSON OF ADMINISTRATOR AND DISTRIBUTOR **AFFILIATED PERSON OF INVESTMENT ADVISER INVESTMENT ADVISER(OF BALANCED PORTFOLIO) Citibank, N.A. 153 East 53rd Street, New York, NY 10043 ADMINISTRATOR AND DISTRIBUTOR CFBDS, Inc. 21 Milk Street, 5th Floor, Boston, MA 02109 (617) 423-1679 TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 AUDITORS PricewaterhouseCoopers LLP 160 Federal Street, Boston, MA 02110 LEGAL COUNSEL Bingham Dana LLP 150 Federal Street, Boston, MA 02110 THE CITIFUNDS FAMILY LARGE CAP STOCKS o CitiFunds Growth & Income Portfolio o CitiFunds Large Cap Growth Portfolio SMALL CAP STOCKS o CitiFunds Small Cap Growth Portfolio o CitiFunds Small Cap Value Portfolio INTERNATIONAL STOCKS o CitiFunds International Growth & Income Portfolio o CitiFunds International Growth Portfolio GROWTH WITH INCOME o CitiFunds Balanced Portfolio BONDS o CitiFunds Short-Term U.S. Government Income Portfolio o CitiFunds Intermediate Income Portfolio o CitiFunds National Tax Free Income Portfolio o CitiFunds New York Tax Free Income Portfolio o CitiFunds California Tax Free Income Portfolio MONEY MARKETS o CitiFunds Cash Reserves o CitiFunds U.S. Treasury Reserves o CitiFunds Tax Free Reserves o CitiFunds New York Tax Free Reserves o CitiFunds California Tax Free Reserves o CitiFunds Connecticut Tax Free Reserves This report is prepared for the information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. For more information contact your Service Agent or call 1-800-625-4554 (C)1999 Citicorp CitiFunds are made available by CFBDS, Inc. as distributor. R Printed on recycled paper CFS/BAL/699 -----END PRIVACY-ENHANCED MESSAGE-----