-----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, BykTvh7L1sMhn1cQ7NmFwSUU1yDDmpuMg3lpLm0qHWd8Ni4F7mKaUbh4wMB/zWYm QJrulQNKWCWfzm3xD09cHQ== 0000930413-00-000443.txt : 20000307 0000930413-00-000443.hdr.sgml : 20000307 ACCESSION NUMBER: 0000930413-00-000443 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIFUNDS FIXED INCOME TRUST CENTRAL INDEX KEY: 0000795808 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 559316 BUSINESS ADDRESS: STREET 1: 21 MILK STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174231679 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNDS/ DATE OF NAME CHANGE: 19931117 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK FIXED INCOME FUNCS/DE DATE OF NAME CHANGE: 19931115 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK U S GOVERNMENT INCOME FUND DATE OF NAME CHANGE: 19920703 N-30D 1 FORM N-30D ANNUAL REPORT O DECEMBER 31, 1999 CITIFUNDS(SM) Short-Term U.S. Government Income Portfolio - -------------------------------------------------------------------------------- INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE - -------------------------------------------------------------------------------- BONDS TABLE OF CONTENTS Letter to Our Shareholders 1 - -------------------------------------------------------------------------------- Portfolio Environment and Outlook 2 - -------------------------------------------------------------------------------- Fund Facts 3 - -------------------------------------------------------------------------------- Fund Performance 4 - -------------------------------------------------------------------------------- CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO Statement of Assets and Liabilities 5 - -------------------------------------------------------------------------------- Statement of Operations 5 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 6 - -------------------------------------------------------------------------------- Financial Highlights 7 - -------------------------------------------------------------------------------- Notes to Financial Statements 8 - -------------------------------------------------------------------------------- Independent Auditors' Report 12 - -------------------------------------------------------------------------------- GOVERNMENT INCOME PORTFOLIO Portfolio of Investments 13 - -------------------------------------------------------------------------------- Statement of Assets and Liabilities 14 - -------------------------------------------------------------------------------- Statement of Operations 14 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 15 - -------------------------------------------------------------------------------- Financial Highlights 15 - -------------------------------------------------------------------------------- Notes to Financial Statements 16 - -------------------------------------------------------------------------------- Independent Auditors' Report 20 - -------------------------------------------------------------------------------- LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: Like the rest of the bond market, the U.S. government securities market had a challenging year in 1999. Faster-than-expected economic growth in the United States, coupled with rapid global economic recovery, contributed to sharply higher interest rates and price erosion for most U.S. bonds. These negative economic influences were accompanied by adverse supply-and-demand factors, in which investors' preference for higher yielding securities such as stocks and corporate bonds offset the positive effects of reduced supply caused by the federal budget surplus. Throughout the period, the CitiFunds' investment adviser, Citibank, N.A., continued to manage CitiFundsSM Short-Term U.S. Government Income Portfolio according to its investment objective, which is to generate current income and preserve the value of its shareholders' investment. This report reviews the Fund's investment activities and performance for the year ended December 31, 1999, 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 January 17, 2000 1 PORTFOLIO ENVIRONMENT AND OUTLOOK AFTER SEVERAL YEARS OF FALLING YIELDS AND HIGHER PRICES, THE U.S. GOVERNMENT SECURITIES MARKET DECLINED SHARPLY OVER THE PAST YEAR. While the economic and market conditions that fueled the bond market's previous rise have remained largely intact-including positive economic growth characterized by low inflation-many investors became concerned that inflationary pressures might resurface. In fact, in an attempt to forestall a potential reacceleration of inflation, the Federal Reserve Board (the "Fed") raised interest rates three times during 1999. These economic conditions are in stark contrast to the environment that prevailed just before the reporting period began in January 1999. In late 1998, the Fed completed a series of interest rate cuts intended to stimulate global economic growth, which was then threatened by the spread of an international currency and credit crisis, and to help insulate the U.S. economy from the adverse effects of a global economic slow-down. The Fed's strategy was apparently effective because many overseas economies began to recover in 1999 and the U.S. economy continued its strong growth. During the global financial crisis, both domestic and foreign investors flocked to the relative safety and high liquidity of U.S. Treasury securities. This surge in demand caused a substantial rally in the prices of U.S. Treasury securities, while prices of higher yielding but out-of-favor corporate bonds, mortgage-backed securities and U.S. government agency securities fell sharply. BOND INVESTOR SENTIMENT CHANGED DRAMATICALLY IN EARLY 1999. Rather than worrying about a potential economic slowdown, investors became concerned that U.S. and other economies were growing too strongly. Evidence began to emerge that troubled overseas economies were on their way to recovery, and economic growth in the U.S. was stronger than expected. In turn, these conditions led to fears that long-dormant inflationary pressures might reemerge. Because inflation causes bond prices to decline, the U.S. bond market experienced heightened levels of volatility, particularly during the third quarter of 1999. This volatility reflected investor uncertainty over the direction and magnitude of monetary policy changes and their effects on interest rates and bond yields. While no dramatic increase in the inflation rate has yet to materialize, investors became increasingly concerned by extremely low levels of unemployment, robust consumer spending and a weakening U.S. dollar relative to other major currencies. IN THIS HIGHLY VOLATILE BOND MARKET, THE YIELD DIFFERENCES BETWEEN U.S. TREASURY SECURITIES AND HIGHER YIELDING BONDS WIDENED SHARPLY, approaching the levels seen after the near-failure of major hedge funds during the summer of 1998. Accordingly, CitiFunds Short-Term U.S. Government Income Portfolio focused on capturing the most attractive yields in the U.S. government securities marketplace. As a result, the Portfolio' s management emphasized U.S. government agency securities and de-emphasized investments in lower-yielding U.S. Treasury securities. DURING THE YEAR, THE INVESTMENT TEAM FOUND THE HIGHEST-YIELDING OPPORTUNITIES PRIMARILY IN MORTGAGE-BACKED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES such as the Government National Mortgage Association* ("Ginnie 2 Mae"). The Portfolio's management also maintained a position in "off-the-run" (OTR) U.S. Treasury securities, which are seasoned Treasury securities yielding a higher rate versus their newly issued, similar maturity counterparts. According to management, if the risk premium for owning new issue Treasury securities moderates from prevailing levels, OTR Treasuries may represent solid investment opportunities. As part of their investment strategy, management reduced the Fund's average duration (i.e., a measure of sensitivity to changing interest rates) by the end of the period toward the short end of the neutral range. In their view, this duration change should give them the flexibility they need to upgrade the Portfolio opportunistically if and when higher yielding securities become available. Looking forward, management expects heightened bond market volatility to continue into 2000. OVER THE LONG TERM, HOWEVER, THEY THINK THERE IS A GOOD CHANCE THAT U.S. TREASURY SECURITIES MAY RALLY AS SUPPLY-AND-DEMAND INFLUENCES RETURN TO A MORE NORMAL BALANCE. Management is particularly optimistic about U.S. Treasury securities because of the federal budget surplus, which may ultimately cause them to perform well. * The Government National Mortgage Association (GNMA) is an agency of the U.S. Department of Housing and Urban Development. GNMA guarantees, with the full faith and credit of the U.S. Government, full and timely payment of all monthly principal and interest payments on the mortgage-backed, pass-through securities of registered holders. 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 12/31/99 $31.1 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 FUND PERFORMANCE TOTAL RETURNS ONE FIVE TEN ALL PERIODS ENDED DECEMBER 31, 1999 YEAR YEARS* YEARS* - ------------------------------------------------------------------------------- CitiFunds Short-Term U.S. Government Income Portfolio without sales charge 2.07% 5.75% 5.98% Lipper Short U.S. Government Funds Average 2.50% 5.57% 5.66% Lehman Brothers 1-3 Year U.S. Government Index 2.97% 6.48% 6.56% CitiFunds Short-Term U.S. Government Income Portfolio with a maximum sales charge of 1.50% 0.54% 5.43% 5.82% * Average Annual Total Return 30-Day SEC Yield 4.86% GROWTH OF A $10,000 INVESTMENT A $10,000 investment in the Fund made ten years ago would have grown to $17,604, including the maximum sales charge (as of 12/31/99). The graph shows how the Fund compares to its benchmarks over the same period. [LINE CHART OMITTED]
Date CitiFunds Short Term Lipper Short US Lehman Brothers 1-3 Year U.S. Government Income Portfolio Government Funds Average U.S. Government Index (unmanaged) 02/10/1997 9850 10000 10000 9676 9985 10011 03/31/1997 9687 10031 10063 9674 10061 10094 9516 10072 10118 06/30/1997 9832 10222 10273 10001 10326 10381 10144 10447 10507 09/30/1997 9997 10464 10544 10076 10541 10627 10211 10649 10745 12/31/1997 10443 10766 10649 10628 10887 10977 10749 10986 11080 03/31/1998 10810 11048 11151 10852 11109 11226 10960 11211 11334 06/30/1998 11016 11275 11401 10970 11299 11444 11137 11408 11542 09/30/1998 11401 11569 11700 11679 11704 11824 11789 11823 11952 12/31/1998 11852 11935 12075 12094 12136 12258 12013 12064 12241 03/31/1999 12069 12033 12278 12049 11963 12274 12119 12061 12386 06/30/1999 12278 12188 12501 12406 12314 12627 12565 12462 12772 09/30/1999 12648 12564 12876 12760 12667 12996 12640 12569 12922 12/31/1999 12624 12549 12903 12766 12669 13023 12936 12829 13160 13064 12951 13264 13110 12992 13305 13190 13065 13386 13148 13049 13354 13293 13170 13453 13287 13206 13482 13481 13335 13594 13535 13373 13638 13565 13395 13668 13499 13357 13670 13542 13405 13725 13624 13496 13810 13473 13384 13727 13315 13246 13657 13215 13152 13605 13242 13128 13624 13240 13127 13658 13379 13233 13781 13405 13264 13826 13334 13217 13795 13346 13225 13826 13274 13172 13769 13310 13201 13795 13510 13365 13983 13696 13556 14173 13767 13627 14253 13910 13744 14381 14230 14015 14626 14302 14085 14705 14286 14102 14763 14388 14204 14851 14461 14285 14924 14578 14413 15048 14726 14551 15176 14838 14672 15291 14943 14777 15420 14819 14709 15360 14757 14692 15349 14724 14695 15364 14723 14712 15398 14814 14811 15510 14863 14860 15571 14895 14900 15628 15023 15028 15770 15198 15186 15949 15310 15304 16067 15286 15300 16070 15368 15372 16147 15401 15412 16186 15354 15384 16173 15486 15496 16305 15586 15587 16420 15685 15670 16533 15868 15833 16713 15870 15839 16730 15971 15949 16857 16106 16060 16982 16124 16096 17024 16220 16175 17138 16391 16312 17303 16392 16323 17318 16445 16379 17386 16512 16443 17469 16596 16527 17562 16663 16599 17653 16731 16666 17736 16938 16836 17952 17163 17041 18194 17214 17070 18282
CitiFunds Short-Term U.S. Government Income Portfolio Lipper Short U.S. Government Funds Average Lehman Brothers 1-3 Year U.S. Government Index (unmanaged) 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 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1999 ================================================================================ ASSETS: Investment in Government Income Portfolio, at value (Note 1A) $31,193,404 Receivable from the Administrator 46,067 - -------------------------------------------------------------------------------- Total assets 31,239,471 - -------------------------------------------------------------------------------- LIABILITIES: Dividends payable 46,714 Payable for shares of beneficial interest repurchased 42,003 Payable to affiliates--Shareholder Servicing Agents' fees (Note 2B) 6,691 Accrued expenses and other liabilities 34,749 - -------------------------------------------------------------------------------- Total liabilities 130,157 - -------------------------------------------------------------------------------- NET ASSETS for 3,288,197 shares of beneficial interest outstanding $31,109,314 ================================================================================ NET ASSETS CONSIST OF: Paid-in capital $34,690,092 Accumulated net realized loss (2,794,843) Unrealized depreciation (814,340) Undistributed net investment income 28,405 - -------------------------------------------------------------------------------- Total $31,109,314 ================================================================================ COMPUTATION OF: Net Asset Value, per share $9.46 Offering Price per share ($9.46 / 0.985) $9.60* ================================================================================ * Based upon single purchases of less than $50,000 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income from Government Income Portfolio $2,281,512 Allocated Expenses from Government Income Portfolio (137,897) - -------------------------------------------------------------------------------- $ 2,143,615 EXPENSES: Administrative fees (Note 2A) $ 97,993 Shareholder Servicing Agents fees (Note 2B) 97,993 Distribution fees (Note 3) 58,796 Legal fees 35,420 Shareholder reports 23,890 Custody and fund accounting fees 17,980 Transfer agent fees 17,250 Audit fees 13,200 Trustee fees 10,672 Registration fee 2,670 Miscellaneous 3,351 - -------------------------------------------------------------------------------- Total expenses 379,215 Less aggregate amount waived by Administrator and Distributor (Notes 2A and 3) (156,789) Less Expenses Assumed by the Administrator (Note 6) (46,067) - -------------------------------------------------------------------------------- Net expenses 176,359 - -------------------------------------------------------------------------------- Net investment income 1,967,256 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS FROM GOVERNMENT INCOME PORTFOLIO: Net realized loss (402,148) Unrealized depreciation of investments (717,277) - -------------------------------------------------------------------------------- Net realized and unrealized loss from Government Income Portfolio (1,119,425) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 847,831 ================================================================================ See notes to financial statements 5 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 1,967,256 $ 1,448,972 Net realized gain (loss) (402,148) 230,601 Unrealized appreciation (depreciation) of investments (717,277) 40,666 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 847,831 1,720,239 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (1,953,508) (1,442,038) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares 4,736,314 36,423,583 Net asset value of shares issued to shareholders from reinvestment of dividends 1,901,282 1,435,786 Cost of shares repurchased (22,456,702) (10,340,734) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest (15,819,106) 27,518,635 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (16,924,783) 27,796,836 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 48,034,097 20,237,261 - -------------------------------------------------------------------------------- End of period (including undistributed net investment income of $28,405 and $14,657, respectively) $31,109,314 $48,034,097 ================================================================================ See notes to financial statements 6 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 1996 1995 ================================================================================ Net Asset Value, beginning of period $9.73 $9.61 $ 9.55 $ 9.78 $ 9.28 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.473 0.473 0.504 0.516 0.543 Net realized and unrealized gain (loss) (0.276) 0.121 0.064 (0.232) 0.500 - -------------------------------------------------------------------------------- Total from operations 0.197 0.594 0.568 0.284 1.043 - -------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.467) (0.474) (0.508) (0.514) (0.543) - -------------------------------------------------------------------------------- Total distributions (0.467) (0.474) (0.508) (0.514) (0.543) - -------------------------------------------------------------------------------- Net Asset Value, end of period $9.46 $9.73 $ 9.61 $ 9.55 $ 9.78 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $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% Ratio of net investment income to average net assets 5.02% 4.98% 5.20% 5.31% 5.38% Total return 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 $0.411 $0.413 $0.442 $0.460 $0.499 RATIOS: Expenses to average net assets (A) 1.37% 1.42% 1.43% 1.38% 1.23% Net investment income to average net assets 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. See notes to financial statements 7 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 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 (49.0% at December 31, 1999) in the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's Administrator and Distributor. For the year ended December 31, 1999, CFBDS, acting as the distributor, received net commissions paid by investors of $1,649 from the sale of fund shares. 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 8 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. D. Expenses The Fund bears all costs of its operations other than expenses specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with respect to any two or more funds or series are allocated in proportion to the average net assets of each fund, except when allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. The Fund's share of the Portfolio's expenses are charged against and reduce the amount of the Fund's investment in the Portfolio. E. Distributions Distributions to shareholders are recorded on ex-dividend date. The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from generally accepted accounting principles. These differences are attributable to permanent book and tax accounting differences. Reclassifications are made to the Fund's capital accounts to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. F. Other All the net investment income and realized and unrealized gain and loss of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and the other investors in the Portfolio at the time of such determination. Investment transactions are accounted for on a trade date basis. 2. ADMINISTRATIVE SERVICES PLAN The Trust has adopted an Administrative Services Plan which provides that the Trust, on behalf of the Fund, may obtain the services of an Administrator, one or more Shareholder Servicing Agents and other Servicing Agents and may enter into agreements providing for the payment of fees for such services. Under the Trust Administrative Services Plan, the aggregate of the fees paid to the Administrator from the Fund, the fees paid to the Shareholder Servicing Agents from the Fund under such Plan and the Basic Distribution Fee paid from the Fund to the Distributor under the Distribution Plan may not exceed 0.65% of the Fund's average daily net assets on an annualized basis for the Fund's then current fiscal year. A. Administrative Fees Under the terms of an Administrative Services Agreement, the administrative fees paid to the Administrator, as compensation for overall administrative services and general office facilities, may not exceed an annual rate of 0.25% of the Fund's average daily net assets. The Administrative fees amounted to $97,993, all of which was voluntarily waived for the year ended December 31, 1999. Citibank acts as Sub-Administrator and performs duties and receives compensation from CFBDS from time to time as agreed to by CFBDS and Citibank. The Fund pays no compensation directly to any Trustee or any offi- 9 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) cer who is affiliated with the Administrator, all of whom receive remuneration for their services to the Fund from the Administrator or its affiliates. Certain of the officers and a Trustee of the Fund are officers or directors of the Administrator or its affiliates. B. Shareholder Servicing Agents' Fees The Trust, on behalf of the Fund, has entered into shareholder servicing 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 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 $97,993 for the year ended December 31, 1999. 3. DISTRIBUTION FEES The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund compensates the Distributor at an annual rate not to exceed 0.15% of the Fund's average daily net assets. The Distribution fees amounted to $58,796, all of which was voluntarily waived for the year ended December 31, 1999. The Distributor may also receive an additional fee from the Fund not to exceed 0.05% of the Fund's average daily net assets in anticipation of, or as reimbursement for, advertising expenses incurred by the Distributor in connection with the sale of shares of the Fund. No payment of such additional fees has been made during the period. The Distributor voluntarily agreed to waive this fee through December 31, 1999. 4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio for the year ended December 31, 1999 aggregated $4,003,994 and $20,701,114, respectively. 10 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 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: YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 ================================================================================ Shares sold 491,458 3,752,548 Shares issued to shareholders from reinvestment of dividends 198,280 148,353 Shares repurchased (2,338,642) (1,068,844) - -------------------------------------------------------------------------------- Net increase (decrease) (1,648,904) 2,832,057 ================================================================================ 6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the expenses of the Fund for the year ended December 31, 1999, which amounted to $46,067, to maintain a voluntary expense limitation of 0.80% of average daily net assets. This voluntary expense limitation may be discontinued at any time. 11 CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES OF CITIFUNDS FIXED INCOME TRUST (THE "TRUST") AND THE SHAREHOLDERS OF CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of CitiFunds Short-Term U.S. Government Income Portfolio (the "Fund"), a series of CitiFunds Fixed Income Trust, at December 31, 1999, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at December 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts February 18, 2000 12 -----END PRIVACY-ENHANCED MESSAGE-----