-----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, SAv1WOZRKiRDnsJ5/EtsAbBzgzPqyC0yFPrv3Q/+nZxKmwJOpbgikLeu/aSB3QNA Ls/qcltcclOsHSRgRrFuYQ== /in/edgar/work/20000621/0000930413-00-000972/0000930413-00-000972.txt : 20000920 0000930413-00-000972.hdr.sgml : 20000920 ACCESSION NUMBER: 0000930413-00-000972 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIFUNDS FIXED INCOME TRUST CENTRAL INDEX KEY: 0000795808 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 658225 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 0001.txt SEMI-ANNUAL REPORT - -------------------------------------------------------------------------------- CitiFunds(SM) - -------------------------------------------------------------------------------- INTERMEDIATE INCOME PORTFOLIO SEMI-ANNUAL REPORT APRIL 30, 2000 CitiFunds - -------------------------------------------------------------------------------- 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 4 ................................................................................ Fund Performance 5 ................................................................................ CITIFUNDS INTERMEDIATE INCOME PORTFOLIO Statement of Assets and Liabilities 6 ................................................................................ Statement of Operations 7 ................................................................................ Statement of Changes in Net Assets 8 ................................................................................ Financial Highlights 9 ................................................................................ Notes to Financial Statements 11 ................................................................................ U.S. FIXED INCOME PORTFOLIO Portfolio of Investments 15 ................................................................................ Statement of Assets and Liabilities 18 ................................................................................ Statement of Operations 18 ................................................................................ Statement of Changes in Net Assets 19 ................................................................................ Financial Highlights 19 ................................................................................ Notes to Financial Statements 20 ................................................................................ LETTER TO OUR SHAREHOLDERS Dear CitiFunds Shareholder: During the six months ended April 30, 2000, the U.S. stock and bond markets were characterized by historic levels of volatility, leaving many investors with no clear indication of the future direction of the financial markets. Despite the ongoing strength and expansion of the U.S. and global economies, concerns regarding inflation and rising interest rates led to wide fluctuations in stock prices and turbulence in the bond market. Throughout the reporting period, the CitiFunds' investment adviser, Citibank, N.A., continued to manage CitiFundsSM Intermediate Income Portfolio with the goal of achieving its investment objectives of generating a high level of current income and preserving the value of its shareholders' investment. This report reviews the Fund's investment activities and performance during the reporting period and provides a summary of Citibank's perspective on and outlook for the U.S. bond market. Thank you for your continued confidence and participation in these challenging times. Sincerely, /s/ PHILIP W. COOLIDGE - ---------------------- Philip W. Coolidge President May 15, 2000 1 PORTFOLIO ENVIRONMENT AND OUTLOOK MOST SECTORS OF THE U.S. BOND MARKET CONTINUED TO DECLINE OVER THE PAST SIX MONTHS. The U.S. economy continued to gain momentum, with Gross Domestic Product ("GDP") rising 7.3% during the fourth quarter of 1999 and an estimated 5.4% during the first quarter of 2000. This high level of economic growth caused concern among many investors regarding inflation. In an attempt to forestall a potential reacceleration of inflation, the Fed raised interest rates by 75 basis points during the reporting period. HIGHER INTEREST RATES CAUSED MOST SECTORS OF THE U.S. BOND MARKET TO DECLINE. Many bonds were also affected by changing supply-and-demand influences, including the federal government's announcement that it intends to buy back roughly $30 billion of long-term U.S. Treasury bonds. This created an unusual condition in the bond market called an inverted yield curve. An inverted yield curve represents an occurrence whereby longer-term bonds offer lower yields than short-term bonds. In addition, the increased volatility of the stock market created a "flight to quality" among many risk-averse investors, causing the yield differences, or spreads, between high-quality and lower-quality bonds to widen. In this challenging and dynamic bond market, the Fund's management team maintained the Portfolio's average duration modestly shorter than the averages. Duration is a measure of sensitivity to changing interest rates. This defensive duration management strategy was intended to help management maintain the flexibility required to capture higher yields as they became available while interest rates rose. ADDITIONALLY, THE MANAGERS MAINTAINED AN EMPHASIS ON HIGH-QUALITY CORPORATE BONDS, MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES THROUGHOUT MOST OF THE REPORTING PERIOD. The Fund, in line with its investment objective, can invest in U.S. debt securities considered investment grade. Investment grade securities are those rated Baa3 or better by Moody's or BBB or better by Standard & Poor's. The credit ratings assigned to the Portfolio's holdings averaged AA+, helping the Fund's credit quality to remain quite high throughout the six-month reporting period. In the view of the investment team, these types of bonds offered competitive values and the highest yield potential with less risk. However, please note that there is no guarantee that the Portfolio's average holding will continue to be rated AA+. Within the Fund's corporate bond holdings, however, management moved to a more defensive position by selling some of the holdings with longer-term maturities and reinvesting the proceeds in high-quality corporate bonds with shorter maturities. 2 Looking ahead, the Fund's managers remain cautiously optimistic about bond market opportunities. Despite the recent release of economic statistics that may suggest increasing inflation, the managers continue to believe that, ultimately, inflationary pressures should stay under control. In fact, managers anticipate the Fed is likely to raise interest rates only once or twice again this year. The managers' most likely strategy under these expectations would be to increase the Fund's exposure to the higher-yielding sectors of the bond market, subject to the limitation that the Fund may only purchase debt securities that are investment grade at the time of purchase, and to extend the Fund's average duration to lock in prevailing high yields for as long as deemed prudent. And while no guarantees can be made, the managers are confident that this more aggressive strategy could benefit the Fund over the long term. 3 FUND FACTS FUND OBJECTIVE To generate a high level of current income and preserve the value of its shareholders' investments. INVESTMENT MANAGER DIVIDENDS U.S. Fixed Income Portfolio Paid monthly Citibank, N.A. COMMENCEMENT OF OPERATIONS CAPITAL GAINS June 25, 1993 Distributed semi-annually, if any NET ASSETS AS OF 4/30/00 BENCHMARKS Class A shares o Lipper Intermediate Investment $40.7 million Grade Funds Average* Class B shares o Lehman Aggregate Bond Index** $1.9 million *The Lipper Intermediate Investment Grade Funds Average reflects the performance (excluding sales charges) of mutual funds with similar objectives. **The Lehman Aggregate Bond Index is an unmanaged index of U.S. Government and corporate bonds representing a broad measure of the performance of taxable bonds in the U.S. market with maturities of at least one year. PORTFOLIO HIGHLIGHTS PORTFOLIO DIVERSIFICATION AS OF APRIL 30, 2000 [Table below represents pie chart in its printed piece.] Corporate U.S. Preferred *Short- Asset-Backed Mortgage Bonds Treasury Issues Stock Term Securities Obligations 28% 15% 2% (9%) 26% 38% *Includes cash and net other assets 4 FUND PERFORMANCE TOTAL RETURNS SINCE SIX ONE FIVE 6/25/93 ALL PERIODS ENDING APRIL 30, 2000 MONTHS** YEAR YEARS* INCEPTION* - ------------------------------------------------------------------------------- CitiFunds Intermediate Income Portfolio (Class A) without sales charge 0.24% (0.80)% 5.42% 4.58% Lipper Intermediate Investment Grade Funds Average 0.84% 0.10% 5.84% 4.71%+ Lehman Aggregate Bond Index 1.41% 1.26% 6.79% 5.84%+ CitiFunds Intermediate Income Portfolio (Class A) with a maximum sales charge of 4.50% (4.27)% (5.27)% 4.46% 3.88% CitiFunds Intermediate Income Portfolio (Class B) without deferred sales charge (0.01)% (1.29)% -- (1.79)%# Lipper Intermediate Investment Grade Funds Average 0.84% 0.10% -- (0.47)%++ Lehman Aggregate Bond Index 1.41% 1.26% -- (0.80)%++ CitiFunds Intermediate Income Portfolio (Class B) with a maximum deferred sales charge of 4.50% (4.51)% (5.73)% -- (5.16)%# * Average Annual Total Return ** Not Annualized + From 6/30/93 ++ From 12/31/98 # From 1/4/99 30-Day SEC Yield Class A 6.19% 30-Day SEC Yield Class B 5.71% GROWTH OF A $10,000 INVESTMENT A $10,000 investment in the Fund made on inception date would have grown to $12,981 with sales charge (as of 4/30/00). The graph shows how this compares to its benchmarks over the same period. [The figures below represent line graph in its printed piece.] 6/25/93 9550 9579 10000 10000 9620 10042 10057 9860 10228 10233 9937 10268 10261 9947 10301 10299 9785 10209 10211 9835 10257 10266 9975 10387 10405 9755 10202 10224 9519 9980 9971 4/30/94 9424 9890 9891 9398 9875 9890 9368 9856 9869 9527 10004 10065 9553 10024 10077 9393 9911 9929 9357 9896 9920 9321 9867 9898 9395 9914 9967 9570 10072 10164 9788 10281 10406 9857 10345 10469 4/30/95 9969 10478 10616 10438 10848 11027 10497 10916 11107 10448 10887 11083 10542 11009 11217 10657 11106 11326 10695 11244 11473 10801 11401 11645 10941 11546 11808 10991 11622 11886 10772 11423 11679 10687 11345 11597 4/30/96 10613 11276 11532 10584 11256 11509 10739 11384 11664 10756 11410 11695 10725 11401 11675 10928 11587 11878 11167 11821 12142 11360 12016 12350 11239 11910 12235 11292 11805 12273 11320 11829 12303 11181 11705 12167 4/30/97 11354 11857 12349 11444 11959 12467 11570 12092 12615 11858 12403 12956 11743 12294 12846 11910 12465 13034 12117 12522 13223 12111 12557 13284 12236 12670 13418 12433 12833 13590 12402 12815 13580 12448 12861 13626 4/30/98 12490 12916 13697 12622 13031 13827 12729 13125 13944 12733 13147 13974 12972 13307 14201 13250 13601 14534 13162 13502 14457 13180 13564 14539 13223 13609 14583 13299 13696 14686 12975 13441 14429 13064 13538 14509 4/30/99 13086 13579 14588 12961 13438 14460 12890 13388 14414 12803 13450 14352 12771 13428 14345 12945 13562 14511 12950 13580 14565 12968 13591 14563 12909 13533 14493 12830 13483 14446 12960 13614 14620 13134 13771 14813 4/30/00 12981 13695 14770 CitiFunds Intermediate Income Fund Lipper Intermediate Investment Grade Funds Average Lehman Aggregate Bond Index The graph includes the initial maximum sales charge on 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. Total returns reflect certain voluntary fee waivers which may be terminated at any time. If the waivers were not in place, total returns would be lower. The maximum sales charge of 4.50% went into effect on January 4, 1999. Investors may not invest directly in an index. 5 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2000 (Unaudited) ================================================================================ ASSETS: Investment in U.S. Fixed Income Portfolio at value (Note 1A) $42,658,288 Receivable from Sub-Administrator 60,396 Receivable for shares of beneficial interest sold 6,001 - -------------------------------------------------------------------------------- Total assets 42,724,685 - -------------------------------------------------------------------------------- LIABILITIES: Payable for shares of beneficial interest repurchased 68,519 Dividends payable 22,591 Accrued expenses and other liabilities 59,322 - -------------------------------------------------------------------------------- Total liabilities 150,432 - -------------------------------------------------------------------------------- NET ASSETS $42,574,253 ================================================================================ NET ASSETS CONSIST OF: Paid-in capital $49,624,363 Accumulated net realized loss (5,449,486) Unrealized depreciation (1,743,742) Undistributed net investment income 143,118 - -------------------------------------------------------------------------------- Total $42,574,253 ================================================================================ COMPUTATION OF CLASS A SHARES: Net Asset Value per share ($40,689,857/4,468,938 shares outstanding) $9.11 Offering price per share ($9.11 / 0.955) $9.54* ================================================================================ CLASS B SHARES: Net Asset Value per share and offering price ($1,884,396/206,477 shares outstanding) $9.13** ================================================================================ * Based upon single purchases of less than $25,000. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges. See notes to financial statements 6 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2000 (Unaudited) ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income from U.S. Fixed Income Portfolio $ 1,680,881 Dividend Income from U.S. Fixed Income Portfolio 28,831 Allocated Expenses from U.S. Fixed Income Portfolio (96,793) - -------------------------------------------------------------------------------- $ 1,612,919 - -------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 84,149 Service fees Class A (Note 3) 57,585 Service fees Class B (Note 3) 7,564 Transfer agent fees 33,642 Custody and fund accounting fees 17,825 Shareholder reports 17,203 Legal fees 12,110 Audit fees 9,342 Trustees fees 8,139 Other 21,623 - -------------------------------------------------------------------------------- Total expenses 269,182 Less expenses assumed by the Sub-Administrator (Note 6) (60,396) Less aggregate amounts waived by the Manager (Note 2) (84,149) - -------------------------------------------------------------------------------- Net expenses 124,637 - -------------------------------------------------------------------------------- Net investment income 1,488,282 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM U.S. FIXED INCOME PORTFOLIO: Net realized loss from investment transactions (2,025,193) Net realized gain on futures transactions 95,366 Unrealized appreciation of investments and futures contracts 527,856 - -------------------------------------------------------------------------------- Net realized and unrealized loss from U.S. Fixed Income Portfolio (1,401,971) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 86,311 ================================================================================ See notes to financial statements 7 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED APRIL 30, 2000 OCTOBER 31, (Unaudited) 1999 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income $ 1,488,282 $ 3,896,464 Net realized loss (1,929,827) (1,275,483) Unrealized appreciation (depreciation) 527,856 (3,954,983) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 86,311 (1,334,002) - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (Class A) (1,464,385) (3,638,279) Net investment income (Class B) (58,760) (80,204) - -------------------------------------------------------------------------------- Decrease in net assets from distributions to shareholders (1,523,145) (3,718,483) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): CLASS A Net proceeds from sale of shares 738,559 26,451,535 Net asset value of shares issued to shareholders from reinvestment of distributions 1,464,385 3,587,003 Cost of shares repurchased (12,160,417) (49,885,122) - -------------------------------------------------------------------------------- Total Class A (9,957,473) (19,846,584) - -------------------------------------------------------------------------------- CLASS B* Net proceeds from sale of shares 104,276 3,269,414 Net asset value of shares issued to shareholders from reinvestment of distributions 50,838 62,923 Cost of shares repurchased (557,505) (850,681) - -------------------------------------------------------------------------------- Total Class B (402,391) 2,481,656 - -------------------------------------------------------------------------------- Net decrease in net assets from transactions in shares of beneficial interest (10,359,864) (17,364,928) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS (11,796,698) (22,417,413) - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 54,370,951 76,788,364 - -------------------------------------------------------------------------------- End of period (including undistributed net investment income of $143,118 and $177,981, respectively) $ 42,574,253 $ 54,370,951 ================================================================================
* January 4, 1999 (Commencement of Operations). See notes to financial statements 8 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
CLASS A ------------------------------------------------------------------- SIX MONTHS TEN ENDED YEAR MONTHS APRIL 30, ENDED ENDED YEAR ENDED DECEMBER 31, 2000 OCTOBER 31, OCTOBER 31, ------------------------------ (Unaudited) 1999 1998 1997 1996 1995 1994 =================================================================================================== Net Asset Value, beginning of period $ 9.38 $10.00 $ 9.72 $9.48 $9.77 $8.91 $9.88 - --------------------------------------------------------------------------------------------------- Income From Operations: Net investment income 0.321 0.508+ 0.447 0.575 0.54 0.57 0.521 Net realized and unrealized gain (loss) on investments (0.298) (0.666) 0.272 0.239 (0.29) 0.86 (0.959) - --------------------------------------------------------------------------------------------------- Total from operations 0.023 (0.158) 0.719 0.814 0.25 1.43 (0.438) - --------------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.293) (0.462) (0.439) (0.574) (0.54) (0.57) (0.516) Net realized gain on investments -- -- -- -- -- -- (0.016) - --------------------------------------------------------------------------------------------------- Total distributions (0.293) (0.462) (0.439) (0.574) (0.54) (0.57) (0.532) - --------------------------------------------------------------------------------------------------- Net Asset Value, end of period $ 9.11 $ 9.38 $10.00 $9.72 $9.48 $9.77 $8.91 =================================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $40,690 $52,025 $76,788 $36,702 $43,919 $49,618 $47,582 Ratio of expenses to average net assets(A) 0.90% 0.90% 0.91%* 0.92% 0.90% 0.90% 0.90% Ratio of expenses to average net assets after fees paid indirectly(A) 0.90%* 0.90% 0.90%* 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets 6.21%* 5.20% 5.30%* 5.92% 5.72% 5.97% 5.52% Portfolio turnover(B) -- -- 120% 146% 495% 396% 291% Total return 0.24%** (1.61)% 7.57%** 8.87% 2.73% 16.45% (4.48)% Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated, the net investment income per share and the ratios would have been as follows: Net investment income per share $0.291 $0.467+ $0.412 $0.522 $0.50 $0.52 $0.475 RATIOS: Expenses to average net assets(A) 1.50%* 1.32% 1.33%* 1.47% 1.39% 1.42% 1.39% Net investment income to average net assets 5.61%* 4.78% 4.88%* 5.37% 5.23% 5.45% 5.03% ===================================================================================================
* Annualized ** Not Annualized + The per share amounts were computed using monthly average of shares during the period. (A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been adjusted to reflect a change in reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the effect of any expense offset arrangements with its service providers. The expense ratios for each of the periods ended before December 31, 1995 have not been adjusted to reflect this change. (B) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in securities. The portfolio turnover rate for the period since the Fund transferred all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. See notes to financial statements 9 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CLASS B ---------------------------------- SIX MONTHS JANUARY 4, 1999 ENDED (COMMENCEMENT APRIL 30, 2000 OF OPERATIONS) TO (Unaudited) OCTOBER 31, 1999 ================================================================================ Net Asset Value, beginning of period $ 9.40 $ 9.95 - -------------------------------------------------------------------------------- Income From Operations: Net investment income 0.348 0.384+ Net realized and unrealized gain (loss) on investments (0.348) (0.617) - -------------------------------------------------------------------------------- Total from operations -- (0.233) - -------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.270) (0.317) - -------------------------------------------------------------------------------- Net Asset Value, end of period $ 9.13 $ 9.40 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $1,884 $2,346 Ratio of expenses to average net assets 1.40%* 1.40%* Ratio of net investment income to average net assets 5.71%* 4.70%* Total return (0.01)%** (2.35)%** Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated, the net investment income per share and the ratios would have been as follows: Net investment income per share $0.317 $0.343+ RATIOS: Expenses to average net assets 2.00%* 1.82%* Net investment income to average net assets 5.11%* 4.28%* ================================================================================ * Annualized ** Not Annualized + The per share amounts were computed using monthly average of shares during the period. See notes to financial statements 10 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Intermediate Income Portfolio (the "Fund") is a separate diversified series of CitiFunds Fixed Income Trust (the "Trust") which is organized as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Fund invests all of its investable assets in U.S. Fixed Income Portfolio (the "Portfolio") a management investment company for which Citibank, N.A. ("Citibank") serves as Investment Manager. The value of such investment reflects the Fund's proportionate interest (approximately 20.4% at April 30, 2000) in the net assets of the Portfolio. The Investment Manager of the Fund is Citibank, N.A. ("Citibank"). CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and Distributor. The Fund offers Class A and Class B shares. The Fund commenced its public offering of Class B shares on January 4, 1999. Class A shares have a front-end, or initial sales charge effective January 4, 1999. This sales charge may be reduced or eliminated in certain circumstances. Class B shares have no front-end sales charge, pay higher ongoing distribution fees than Class A, and are subject to a deferred sales charge if sold within five years of purchase. Class B shares automatically convert into Class A shares after eight years. Expenses of the Fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 plan. Shares of each class would receive their own pro-rata share of the net assets of the Fund if the Fund were liquidated. Class A shares have lower expense ratios than Class B shares. For the six months ended April 30, 2000, CFBDS, acting as the distributor, received $1,236 from sales of Class A and $1,280 in deferred sales charges from redemptions of Class B shares. The financial statements of the Portfolio, including the portfolio of investments are contained elsewhere in this report and should be read in conjunction with the Fund's financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The significant accounting policies consistently followed by the Fund are in conformity with generally accepted accounting principles and are as follows: A. Investment Valuation Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. Investment Income The Fund earns income, net of Portfolio expenses, daily based on its investment in the Portfolio. 11 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) C. Federal Taxes The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its taxable income, including any net realized gain on investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At October 31, 1999, the Fund, for federal income tax purposes, had a capital loss carryover of $3,181,151 of which $1,142,935 will expire on October 31, 2002, $1,075,574 which will expire on October 31, 2004 and $962,642 which will expire on October 31, 2007. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized gain on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. D. Expenses The Fund bears all costs of its operations other than expenses specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with respect to any two or more funds or series are allocated in proportion to the average net assets of each fund, except when allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. E. Distributions Distributions to shareholders are recorded on ex-dividend date. The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from generally accepted accounting principles. These differences are attributable to permanent book and tax accounting differences. Reclassifications are made to the Fund's capital accounts to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. F. Other All the net investment income, realized and unrealized gain and loss of the Portfolio is allocated pro rata, based on respective ownership interests, among the Fund and the other investors in the Portfolio at the time of such determination. Investment transactions are accounted for on the trade date basis. Realized gains and losses are determined on the identified cost basis. 2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's business affairs, and has a Management Agreement with the Fund. Citibank also provides certain administrative services to the Fund. These administrative services include providing general office facilities and supervising the overall administration of the Fund. CFBDS acts as Sub-Administrator and performs such duties and receives such compensation from Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citigroup Inc. 12 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) The management fees paid to Citibank are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.35% of the Fund's average daily net assets. The management fee amounted to $84,149 all of which was voluntarily waived for the six months ended April 30, 2000. 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 $57,585 for the six months ended April 30, 2000. Under the Class B Service Plan, the Fund may pay a combined monthly distribution and service fee at an annual rate not to exceed 0.75% of the average daily net assets represented by Class B shares of the Fund. The Service fees for Class B shares amounted to $7,564 for the six months ended April 30, 2000. These fees may be used to make payments to the Distributor for distribution services and to others as compensation for the sale of shares of the applicable class of the Fund, for advertising, marketing or other promotional activity, and for preparation, printing and distribution of prospectuses, statements of additional information and reports for recipients other than regulators and existing shareholders. The Fund may also make payments to the Distributor and others for providing personal service or the maintenance of shareholder accounts. 4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio for the six months ended April 30, 2000, aggregated $838,613 and $12,883,327, respectively. 13 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares of beneficial interest were as follows: SIX MONTHS ENDED YEAR ENDED APRIL 30, 2000 OCTOBER 31, (Unaudited) 1999 ================================================================================ CLASS A Shares sold 77,975 2,671,683 Shares issued to shareholders from reinvestment of distributions 160,042 370,289 Shares repurchased (1,315,979) (5,171,440) - -------------------------------------------------------------------------------- Class A net decrease (1,077,962) (2,129,468) ================================================================================ CLASS B* Shares sold 11,265 333,168 Shares issued to shareholders from reinvestment of distributions 5,488 6,600 Shares repurchased (59,900) (90,144) - -------------------------------------------------------------------------------- Class B net increase (decrease) (43,147) 249,624 ================================================================================ * January 4, 1999 (Commencement of Operations). 6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the unwaived expenses of the Fund for the six months ended April 30, 2000 which amounted to $60,396. 14 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS April 30, 2000 (Unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- FIXED INCOME -- 107.3% - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES -- 26.4% - -------------------------------------------------------------------------------- Aames Mortgage Trust 6.59% due 6/15/24 $3,389 $3,364,803 Aircraft Financial Trust 8.00% due 5/15/24 5,000 4,573,700 Amresco Residential Securities 6.245% due 4/25/22 2,973 2,948,849 Asset Securitization Corp., Series 95 7.384% due 8/13/29 3,500 3,419,395 Asset Securitization Corp., Series 97 6.50% due 2/14/41 2,291 2,248,724 First Union, Lehman Brothers 6.479% due 3/18/04 3,188 3,120,112 GE Capital Mortgage Services, Inc. 5.905% due 10/25/13 2,000 1,969,220 7.00% due 10/25/23 1,979 1,857,711 GMAC Commercial Mortgage Inc. 6.42% due 8/15/08 1,110 1,021,766 6.83% due 12/15/03 3,037 3,023,232 7.724% due 12/15/09 4,500 4,496,096 Green Tree Financial Corp. 6.71% due 8/15/29 3,850 3,573,378 8.05% due 10/15/27 5,000 4,915,600 8.41% due 12/01/30 3,000 2,843,430 IMC Home Equity Loan Trust 6.16% due 5/20/14 1,441 1,433,937 JP Morgan Commercial Mortgage Financial Corp. 6.373% due 1/15/30 1,927 1,871,484 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 1,558 1,534,566 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 3,262 3,204,888 Nissan Auto Receivables Grantor 6.15% due 2/15/03 733 727,402 Nomura Asset Securitization Corp. 8.15% due 3/04/20 3,000 3,029,340 ------------ 55,177,633 ------------ FOREIGN CORPORATIONS -- 5.4% - -------------------------------------------------------------- Merita Bank PLC 6.50% due 4/01/09 2,415 2,178,378 Pemex Financial Ltd. 9.03% due 2/15/11 2,175 2,215,651 Quebec Province CDA 7.50% due 9/15/29 2,235 2,185,495 Telefonica de Argentina 9.125% due 5/07/08 2,360 2,242,000 YPF Sociedad Anonima 7.25% due 3/15/03 2,425 2,338,859 ------------ 11,160,383 ------------ DOMESTIC CORPORATIONS -- 19.4% - -------------------------------------------------------------------------------- Abitibi Consolidated Inc. 8.50% due 8/01/29 2,660 2,444,088 Ahold Financial U.S.A. Inc. 6.875% due 5/01/29 1,785 1,497,419 BB&T Corp. 6.375% due 6/30/05 2,280 2,129,018 Conseco Inc. 6.40% due 6/15/01 660 468,600 Dayton Hudson Corp. 6.65% due 8/01/28 2,200 1,845,514 Delta Airlines Inc. 8.30% due 12/15/29 3,000 2,683,110 Donaldson, Lufkin & Jenrette 5.875% due 4/01/02 1,885 1,818,064 Dynegy Inc. 7.45% due 7/15/06 2,095 2,001,988 Ford Motor Co. 7.375% due 10/28/09 2,315 2,237,725 Knight Ridder Inc. 6.875% due 3/15/29 2,355 2,043,601 Lehman Brothers Holdings, Inc. 7.75% due 1/15/05 2,090 2,091,296 Lockheed Martin Corp. 7.95% due 12/01/05 2,175 2,130,543 MCI Communications Corp. 6.50% due 4/15/10 2,300 2,093,943 Morgan Stanley Dean Witter & Co. 5.625% due 1/20/04 2,350 2,203,477 National Rural Utilities 6.20% due 2/01/08 2,040 1,864,417 Osprey Trust Inc. 8.31% due 1/15/03 2,220 2,201,352 Popular North America, Inc. 6.875% due 6/15/01 2,195 2,171,630 Raytheon Co. 7.90% due 3/01/03 2,255 2,216,124 St. Paul Cos Inc. 7.875% due 4/15/05 2,150 2,104,506 Saks Inc. 8.25% due 11/15/08 2,415 2,179,538 ------------ 40,425,953 ------------ 15 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (Continued) April 30, 2000 (Unaudited) PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- MORTGAGE OBLIGATIONS -- 38.2% - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 10.0% - -------------------------------------------------------------------------------- Asset Backed Securitization Corp., 6.64% due 12/25/27 $ 2,500 $2,267,975 CMC Securitization Corp., Series 97 7.00% due 10/25/27 541 536,739 CWMBS Inc., Series 98 6.50% due 7/25/13 2,122 1,961,823 Chase Mortgage Financial Trust 6.50% due 9/25/13 1,970 1,818,946 Chase Mortgage Financial Trust 7.25% due 2/25/30 2,500 2,361,675 Credit Suisse First Boston Mortgage 7.29% due 9/15/09 3,900 3,788,099 Federal Home Loan Mortgage Corp. 6.00% due 1/15/24 1,000 921,250 6.25% due 6/15/24 3,440 3,245,330 Federal National Mortgage Association 7.412% due 8/17/21 2,941 2,901,344 Government National Mortgage Association 7.25% due 10/16/22 848 845,916 Residential Asset Securitization Trust 7.00% due 2/25/08 272 271,197 ------------ 20,920,294 ------------ MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 20.0% - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 6.00% due TBA* 1,000 907,188 6.00% due 8/01/00 1,541 1,530,296 7.50% due TBA* 3,700 3,615,011 8.50% due 4/01/01 3 3,401 ------------ 6,055,896 ------------ Federal National Mortgage Association 5.50% due TBA* 5,000 4,354,688 6.50% due TBA* 7,000 6,531,840 6.50% due 4/01/29 3,818 3,566,195 6.50% due 5/01/29 4,314 4,025,161 7.00% due 6/01/03 168 166,313 7.00% due 7/01/03 273 269,660 7.50% due TBA* 5,700 5,653,716 7.50% due TBA* 11,400 11,154,188 8.00% due 6/01/02 4 4,271 ------------ 35,726,032 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 8.2% - -------------------------------------------------------------------------------- 6.50% due TBA* 12,400 11,613,375 7.00% due 2/15/24 3,457 3,337,462 8.00% due TBA 2,000 2,004,375 8.00% due 12/15/07 34 34,145 ------------ 16,989,357 ------------ TOTAL MORTGAGE OBLIGATIONS 79,691,579 ------------ YANKEE BONDS -- 3.2% - -------------------------------------------------------------------------------- Corporacion Andina de Fomento 7.75% due 3/01/04 2,180 2,145,033 Empresa Nacional 7.75% due 7/15/08 1,105 1,026,534 Imperial Tobacco Overseas 7.125% due 4/01/09 2,705 2,363,683 TPSA Financial 7.75% due 12/10/08 1,305 1,245,604 ------------ 6,780,854 ------------ UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 14.7% - -------------------------------------------------------------------------------- UNITED STATES TREASURY BONDS -- 7.0% - -------------------------------------------------------------------------------- 8.125% due 8/15/19 5,415 6,506,447 3.625% due 4/15/28 4,091 3,921,111 3.875% due 4/15/29 2,580 2,585,851 6.125% due 8/15/29 1,575 1,578,685 ------------ 14,592,094 ------------ UNITED STATES TREASURY NOTES -- 7.7% - -------------------------------------------------------------------------------- 5.50% due 12/31/00 110 109,278 6.50% due 5/31/01 1,150 1,149,275 5.875% due 11/15/04 300 292,077 6.875% due 5/15/06 3,480 3,536,550 6.625% due 5/15/07 4,540 4,569,782 6.50% due 2/15/10 6,260 6,384,198 ------------ 16,041,160 ------------ TOTAL UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS 30,633,254 ------------ 16 U.S. FIXED INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS April 30, 2000 (Unaudited) ISSUER SHARES VALUE - -------------------------------------------------------------------------------- TOTAL FIXED INCOME (Identified Cost $231,652,313) $223,869,656 ------------ PREFERRED STOCK -- 1.5% - -------------------------------------------------------------------------------- Comed Financing I (Identified Cost $3,531,870) 138 3,121,752 ------------ SHORT-TERM OBLIGATIONS -- 12.0% - -------------------------------------------------------------------------------- First Union National Bank Repurchase Agreement 5.84% due 5/01/00 proceeds at maturity $24,467,902 (collateralized by $7,250,000 Federal Home Loan Mortgage 5.88% due 2/10/03, valued at $7,068,750; $17,660,000 Federal Home Loan Bank, 6.00% due 11/15/01, valued at $17,880,750) 24,456,000 PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- United States Treasury Bills 5.725% due 6/22/00 $ 688 $ 682,311 ----------- Total Short-Term Obligations (Identified Cost $25,138,311) 25,138,311 ----------- TOTAL INVESTMENTS (Identified Cost $260,322,494) 120.8% 252,129,719 OTHER ASSETS, LESS LIABILITIES (20.8) (43,408,092) ------ ------------ NET ASSETS 100.0% $208,721,627 ====== ============ *TBA's are mortgage-backed securities traded under delayed delivery commitments; settling after April 30, 2000. Although the unit price for the trade has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2% from the principal amount. Income on TBA's is not earned until the settlement date. FUTURES CONTRACTS - -------------------------------------------------------------------------------- Futures contracts which were open at April 30, 2000 are as follows : AGGREGATE DESCRIPTION/ NUMBER OF FACE VALUE OF EXPIRATION UNREALIZED POSITION CONTRACTS CONTRACTS DATE GAIN/(LOSS) - -------------------------------------------------------------------------------- U.S. Long Bond (Sell) (40) $ (4,000,000) June 2000 $(12,500) U.S. Ten Year Note (Sell) (207) (20,700,000) June 2000 (25,875) -------- $(38,375) ======== See notes to financial statements 17 U.S. FIXED INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2000 (Unaudited) ================================================================================ ASSETS: Investments at value (Note 1A) (Identified Cost, $235,184,183) $226,991,408 Short-term obligations at value (Note 1A) (Identified Cost, $25,138,311) 25,138,311 Cash 942 Interest receivable 2,226,735 Receivable for investments sold 3,148,672 - -------------------------------------------------------------------------------- Total assets 257,506,068 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 48,601,679 Payable for daily variations on futures contracts 38,375 Payable to affiliates--Management Fee (Note 2) 53,503 Accrued expenses and other liabilities 90,884 - -------------------------------------------------------------------------------- Total liabilities 48,784,441 - -------------------------------------------------------------------------------- NET ASSETS $208,721,627 ================================================================================ REPRESENTED BY: Paid-in capital for beneficial interests $208,721,627 ================================================================================ U.S. FIXED INCOME PORTFOLIO STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2000 (Unaudited) ================================================================================ INVESTMENT INCOME (Note 1B): Interest Income $8,629,382 Dividend Income 146,257 - -------------------------------------------------------------------------------- $ 8,775,639 - -------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 435,080 Custody and fund accounting fees 75,603 Audit fees 23,385 Trustees fees 8,406 Legal fees 6,537 Other 1,243 - -------------------------------------------------------------------------------- Total expenses 550,254 Less aggregate amount waived by management (Note 2) (52,974) - -------------------------------------------------------------------------------- Net expenses 497,280 - -------------------------------------------------------------------------------- Net investment income 8,278,359 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Unrealized appreciation of investments and futures contracts 2,621,249 Net realized gain from futures and options transactions 549,362 Net realized loss from investment transactions (10,417,359) - -------------------------------------------------------------------------------- Net realized and unrealized loss on investments (7,246,748) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,031,611 ================================================================================ See notes to financial statements 18 U.S. FIXED INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD SIX MONTHS NOVEMBER 1, 1998 ENDED (COMMENCEMENT OF APRIL 30, 2000 OPERATIONS) TO (Unaudited) OCTOBER 31, 1999 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 8,278,359 $11,466,863 Net realized loss from investment and futures transactions (9,867,997) (5,810,514) Unrealized appreciation (depreciation) of investments 2,621,249 (7,440,597) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,031,611 (1,784,248) - -------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: Proceeds from contributions (Note 1) 2,562,211 452,433,828 Value of withdrawals (86,407,793) (159,113,982) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital transactions (83,845,582) 293,319,846 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (82,813,971) 291,535,598 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 291,535,598 -- - -------------------------------------------------------------------------------- End of period $208,721,627 $291,535,598 ================================================================================ U.S. FIXED INCOME PORTFOLIO FINANCIAL HIGHLIGHTS FOR THE PERIOD SIX MONTHS NOVEMBER 1, 1998 ENDED (COMMENCEMENT OF APRIL 30, 2000 OPERATIONS) TO (Unaudited) OCTOBER 31, 1999 ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $208,722 $291,536 Ratio of expenses to average net assets 0.40%* 0.40% Ratio of net investment income to average net assets 6.66%* 6.04% Portfolio turnover 1.58% 253% Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed Portfolio expenses for the periods indicated and had expenses been limited to that required by certain state securities law for the period ended December 31, 1995, the ratios would have been as follows: RATIOS: Expenses to average net assets 0.44%* -- Net investment income to average net assets 6.62%* -- ================================================================================ * Annualized See notes to financial statements 19 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES U.S. Fixed Income Portfolio (the "Portfolio"), a separate series of The Premium Portfolios (the "Portfolio Trust"), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Portfolio commenced operations on November 1, 1998. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. The Investment Manager of the Portfolio is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the Administrator. On November 1, 1998, CitiFunds Intermediate Income Portfolio transferred all of its investable assets in the amount of $76,788,364 including $1,683,386 of unrealized appreciation to the Portfolio in exchange for an interest in the Portfolio. Also, on May 3, 1999, the Intermediate Income Portfolio transferred all of its investable assets in the amount of $153,278,329 including $1,000,795 of unrealized depreciation to the Portfolio in exchange for an interest in the Portfolio. Additionally, on August 1, 1999, the Balanced Portfolio transferred a portion of its investable assets in the amount of $113,810,272 including $3,978,434 of unrealized depreciation to the Portfolio in exchange for an interest in the Portfolio. The total investable assets along with current period contributions are included in the "Proceeds from contributions" on the Statement of Changes in Net Assets. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The significant accounting policies consistently followed by the Portfolio are as follows: A. Investment Security Valuations Debt securities (other than short-term obligations maturing in sixty days or less) are valued on the basis of valuations furnished by pricing services, which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices since such valuations are believed to reflect more accurately the fair value of the securities. Short-term obligations (maturity in sixty days or less) are valued at amortized cost; which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees. B. Income Interest income consists of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for U.S. federal income tax purposes. Gain and loss from principal paydowns are recorded as ordinary income. 20 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) C. U.S. Federal Income Taxes The Portfolio is considered a partnership under the U.S. Internal Revenue Code. Accordingly, no provision for federal income taxes is necessary. D. Expenses The Portfolio bears all costs of its operations other than expenses specifically assumed by Citibank and SFG. Expenses incurred by the Portfolio Trust with respect to any two or more portfolios or series are allocated in proportion to the average net assets of each portfolio, except when allocations of direct expenses to each portfolio can otherwise be made fairly. Expenses directly attributable to a portfolio are charged to that portfolio. E. Repurchase Agreements It is the policy of the Portfolio to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreements. Additionally, procedures have been established by the Portfolio to monitor, on a daily basis, the market value of the repurchase agreement's underlying investments to ensure the existence of a proper level of collateral. F. TBA Purchase Commitments The Portfolio enters into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The Portfolio holds, and maintains until the settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBApurchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under Note 1A. Although the Portfolio will generally enter into TBApurchase commitments with the intention of acquiring securities for its portfolio, the Portfolio may dispose of a commitment prior to settlement if the Portfolio's Adviser deems it appropriate to do so. G. Futures Contracts The Portfolio may engage in futures transactions. The Portfolio may use futures contracts in order to protect the Portfolio from fluctuations in interest rates without actually buying or selling debt securities, or to manage the effective maturity or duration of fixed income securities in the Portfolio's portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Portfolio's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Portfolio's exposure to the underlying instrument, or to hedge other fund investments. 21 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) Upon entering into a futures contract, the Portfolio is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin". Subsequent payments ("variation margin") are made or received by the Portfolio each day, depending on the daily fluctuation of the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Portfolio recognizes a realized gain or loss when the contract is closed. Futures contracts are valued at the settlement price established by the board of trade or exchange on which they are traded. There are several risks in connection with the use of futures contracts as a hedging device. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Futures contracts involve, to varying degrees, risk of loss in excess of the futures variation margin reflected in the Statement of Assets and Liabilities. H. Other Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis. 2. MANAGEMENT FEES Citibank is responsible for overall management of the Portfolio's business affairs, and has a Management Agreement with the Portfolio. Citibank also provides certain administrative services to the Portfolio. These administrative services include providing general office facilities and supervising the overall administration of the Portfolio. CFBDS acts as Sub-Administrator and performs such duties and receives such compensation from Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citigroup Inc. The management fees paid to Citibank amounted to $435,080 of which $52,974 was voluntarily waived for the six months ended April 30, 2000. The management fees are computed at the annual rate of 0.35% of the Portfolio's average daily net assets. The Trust pays no compensation directly to any Trustee or any other officer who is affiliated with the Sub-Administrator, all of whom receive remuneration for their services to the Trust from the Sub-Administrator or its affiliates. 3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other than short-term obligations, aggregated $444,017,085 and $537,250,502 respectively, for the six months ended April 30, 2000. 22 U.S. FIXED INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Unaudited) 4. FEDERAL INCOME TAX BASIS OF INVESTMENTs The cost and unrealized appreciation (depreciation) in value of the investment securities owned at April 30, 2000, as computed on a federal income tax basis, are as follows: Aggregate cost $260,322,494 ================================================================================ Gross unrealized appreciation $ 187,812 Gross unrealized depreciation (8,380,587) - -------------------------------------------------------------------------------- Net unrealized depreciation $ (8,192,775) ================================================================================ 5. LINE OF CREDIT The Portfolio, along with various other portfolios in the CitiFunds Family, entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $75 million for temporary or emergency purposes. Interest on the borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the six months ended April 30, 2000, the commitment fee allocated to the Portfolio was $357. Since the line of credit was established, there have been no borrowings. 23 THIS PAGE INTENTIONALLY LEFT BLANK TRUSTEES AND OFFICERS C. Oscar Morong, Jr., CHAIRMAN Philip W. Coolidge*, PRESIDENT Riley C. Gilley Diana R. Harrington Susan B. Kerley Heath B. McLendon** Walter E. Robb, III E. Kirby Warren William S. Woods, Jr.*** SECRETARY Robert Frenkel** TREASURER Linwood Downs* *AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR **AFFILIATED PERSON OF INVESTMENT MANAGER ***TRUSTEE EMERITUS INVESTMENT MANAGER Citibank, N.A. 153 East 53rd Street, New York, NY 10043 DISTRIBUTOR CFBDS, Inc. 21 Milk Street, 5th Floor Boston, MA 02109 (617) 423-1679 TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 LEGAL COUNSEL Bingham Dana LLP 150 Federal Street, Boston, MA 02110 THE CITIFUNDS FAMILY LARGE CAP STOCKS CitiFunds Growth & Income Portfolio CitiFunds Large Cap Growth Portfolio SMALL CAP STOCKS CitiFunds Small Cap Growth Portfolio CitiFunds Small Cap Value Portfolio INTERNATIONAL STOCKS CitiFunds International Growth & Income Portfolio CitiFunds International Growth Portfolio GROWTH WITH INCOME CitiFunds Balanced Portfolio BONDS CitiFunds Short-Term U.S. Government Income Portfolio CitiFunds Intermediate Income Portfolio CitiFunds National Tax Free Income Portfolio CitiFunds New York Tax Free Income Portfolio CitiFunds California Tax Free Income Portfolio MONEY MARKETS CitiFunds Cash Reserves CitiFunds U.S. Treasury Reserves CitiFunds Tax Free Reserves CitiFunds New York Tax Free Reserves CitiFunds California Tax Free Reserves CitiFunds Connecticut Tax Free Reserves This report is prepared for the information of shareholders of CitiFunds Intermediate Income Portfolio. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus of CitiFunds Intermediate Income Portfolio. For more information about any of the CitiFunds listed above, ask for a prospectus (except for CitiFunds Intermediate Income Portfolio, which preceded or accompanies this report) containing more complete information, including all sales charges (if any), fees and expenses. Please read the prospectus carefully before you invest or send money. Although each money market fund seeks to maintain the value of your investment at $1.00 per share, it is possible to lose money by investing in the funds. Mutual fund shares are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency. CitiFunds are made available by CFBDS, Inc. as distributor. For more information contact your Service Agent or call 1-800-625-4554. (C)2000 Citicorp [GRAPHIC OMITTED] Printed on recycled paper CFS/INI/400 -----END PRIVACY-ENHANCED MESSAGE-----