-----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, PXweTBEChJGUqk1hFDehjXglc5Qw4/uLdAaXJ9Hbnrazcg9I9KYs4YZYSwyNJ05V 6LihIPU0KEuNlbJxBaVt1g== 0000930413-99-000017.txt : 19990108 0000930413-99-000017.hdr.sgml : 19990108 ACCESSION NUMBER: 0000930413-99-000017 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990107 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-30B-2 SEC ACT: SEC FILE NUMBER: 811-05033 FILM NUMBER: 99502477 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-30B-2 1 CITIFUNDS FIXED INCOME TRUST Annual Report o October 31, 1998 CitiFunds(SM) Intermediate Income Portfolio BONDS ================================================================================ INVESTMENT PRODUCTS: NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE ================================================================================ TABLE OF CONTENTS CITIFUNDS INTERMEDIATE INCOME PORTFOLIO Letter to Our Shareholders 1 - -------------------------------------------------------------------------------- Portfolio Environment and Outlook 2 - -------------------------------------------------------------------------------- Fund Facts 3 - -------------------------------------------------------------------------------- Portfolio Highlights 3 - -------------------------------------------------------------------------------- Fund Performance 4 - -------------------------------------------------------------------------------- Portfolio of Investments 5 - -------------------------------------------------------------------------------- Statement of Assets and Liabilities 8 - -------------------------------------------------------------------------------- Statement of Operations 8 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets 9 - -------------------------------------------------------------------------------- Financial Highlights 10 - -------------------------------------------------------------------------------- Notes to Financial Statements 11 - -------------------------------------------------------------------------------- Independent Auditors' Report 16 - -------------------------------------------------------------------------------- LETTER TO OUR SHAREHOLDERS Dear Shareholder: This annual report covers the period from January 1, 1998, through October 31, 1998, for the CitiFundsSM Intermediate Income Portfolio. This reporting period reflects a recent change in the Portfolio's fiscal year, which now ends on October 31. Accordingly, you will receive shareholder reports every six months, as of April 30 and October 31 of each calendar year. Much of the 10-month period ended October 31, 1998 saw a continuation of generally positive economic conditions in the United States. However, over the past several months, the spreading financial crisis overseas has caused prices in the U.S. stock market and some sectors of the U.S. bond market to decline. In our view, recent market volatility once again confirms the benefits of diversification. By allocating your investment assets among a number of different markets, you may be able to reduce the effects of heightened volatility on your overall portfolio. In our view, CitiFunds Intermediate Income Portfolio can play a valuable role as part of such a diversified investment portfolio. Thank you for your continued confidence and participation. Sincerely, /s/ Philip W. Coolidge Philip W. Coolidge President November 20, 1998 1 PORTFOLIO ENVIRONMENT AND OUTLOOK SO FAR, 1998 HAS PROVIDED MIXED RESULTS FOR FIXED-INCOME INVESTORS. A slowing U.S. economy, persistently low inflation and declining long-term interest rates have been good for prices of U.S. Treasury securities. These direct obligations of the federal government rallied during the second and third quarters of 1998, when it became clearer to investors that financial instability overseas would prevent the U.S. economy from overheating and rekindling inflation pressures. In fact, economic growth slowed substantially, and yields on U.S. Treasury bonds fell to their lowest levels in more than 30 years. When yields decline, bond prices rise and provide capital appreciation for investors. OTHER TYPES OF FIXED-INCOME SECURITIES HAVE NOT BENEFITTED AS MUCH FROM THESE ECONOMIC CONDITIONS, however. That's because spreading financial instability overseas has created a "flight to quality" among foreign and domestic investors, who have generally avoided all sectors of the U.S. bond market except Treasury securities. Prices of corporate bonds and even U.S. agency securities fell relative to U.S. Treasury securities when risk-averse investors shifted their assets away from these markets. The Fund was well positioned to take advantage of these influences. In anticipation of declining interest rates, we maintained the portfolio's AVERAGE DURATION -- a measure of sensitivity to changing interest rates -- toward the long end of its range. Accordingly, we were able to maintain higher yields as interest rates fell. In addition, WE MAINTAINED OUR NEUTRAL ALLOCATIONS TO U.S. TREASURY SECURITIES, CORPORATE BONDS AND MORTGAGE-BACKED SECURITIES until recently. As a result, we participated in this past summer's rally of the Treasury market. More recently, WE HAVE REPOSITIONED THE PORTFOLIO FOR THE MARKET CONDITIONS THAT WE BELIEVE LIE AHEAD. Although we expect further declines in short-term interest rates if the Federal Reserve Board continues to ease monetary policy in response to economic weakness overseas, we believe that long-term interest rates should remain near current levels. Accordingly, we have reduced the portfolio's average duration to a more neutral position. This position should help us capture higher yields more quickly if they become available. What's more, it is our opinion that prices in the corporate bond and mortgage-backed securities markets declined more than economic fundamentals currently warrant, creating some compelling values in high-quality securities. Accordingly, we have shifted some assets to these sectors from U.S. Treasuries. Our economic outlook calls for slow growth, low inflation and an accommodative monetary policy. In fact, the Federal Reserve Board has already reduced key short-term interest rates twice over the past few months, their first change in monetary policy since early 1997. Historically, these types of conditions have generally been favorable for high-quality U.S. bonds. On the other hand, we are aware of the dangers of continuing instability in overseas markets. While we do not currently expect these international influences to stop or reverse U.S. economic growth, we are monitoring the situation carefully. If conditions change, we are prepared to reposition the portfolio to attempt to capture the opportunities and avoid the risks that the future may bring. 2 FUND FACTS FUND OBJECTIVE To generate a high level of current income and preserve the value of its shareholders' investments. INVESTMENT MANAGER DIVIDENDS Citibank, N.A. Paid monthly COMMENCEMENT OF OPERATIONS CAPITAL GAINS June 25, 1993 Distributed semi-annually, if any NET ASSETS AS OF 10/31/98 BENCHMARKS $76.8 million o Lipper Intermediate Investment Grade Funds Average o Lehman Aggregate Bond Index PORTFOLIO HIGHLIGHTS PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1998 [the following table represents a pie chart in the printed piece] Asset-Backed Securities 6% Mortgage Obligations 27% Corporate Bonds 22% U.S. Treasury Issues 33% *Short Term 12% *Includes cash and net other assets. 3 FUND PERFORMANCE TOTAL RETURNS SINCE TEN ONE FIVE 6/25/93 ALL PERIODS ENDING OCTOBER 31, 1998 MONTHS** YEAR YEAR* INCEPTION* - -------------------------------------------------------------------------------- CitiFunds Intermediate Income Portfolio 7.57% 8.63% 5.76% 6.18% Lipper Intermediate Investment Grade Funds Average 6.63% 7.94% 6.09% 5.78%+ Lehman Aggregate Bond Index 7.75% 9.34% 7.02% 7.26%+ * Average Annual Total Return ** Not Annualized + From 6/30/93 30-Day SEC Yield 4.55% Income Dividends Per Share $0.439 GROWTH OF A $10,000 INVESTMENT A $10,000 investment in the Fund made on inception date would have grown to $13,782 (as of 10/31/98). The graph shows how this compares to its benchmarks over the same period. [The following table represents a table in the printed piece.] CitiFunds Lipper Intermediate Lehman Aggregate Intermediate Date Inv. Grade Avg. Bond Index Income Fund Jun-93 10000 10000 10030 Jul-93 10042 10057 10073 Aug-93 10228 10233 10325 Sep-93 10268 10261 10406 Oct-93 10301 10299 10416 Nov-93 10209 10211 10246 Dec-93 10257 10266 10299 Jan-94 10387 10405 10445 Feb-94 10202 10224 10215 Mar-94 9980 9971 9968 Apr-94 9890 9891 9868 May-94 9875 9890 9841 Jun-94 9856 9869 9810 Jul-94 10004 10065 9976 Aug-94 10024 10077 10003 Sep-94 9911 9929 9836 Oct-94 9896 9920 9798 Nov-94 9867 9898 9760 Dec-94 9914 9967 9838 Jan-95 10072 10164 10021 Feb-95 10281 10406 10249 Mar-95 10345 10469 10322 Apr-95 10478 10616 10439 May-95 10848 11027 10930 Jun-95 10916 11107 10992 Jul-95 10887 11083 10941 Aug-95 11009 11217 11039 Sep-95 11106 11326 11159 Oct-95 11244 11473 11199 Nov-95 11401 11645 11310 Dec-95 11546 11808 11456 Jan-96 11622 11886 11509 Feb-96 11423 11679 11279 Mar-96 11345 11597 11190 Apr-96 11276 11532 11113 May-96 11256 11509 11083 Jun-96 11384 11664 11245 Jul-96 11410 11695 11263 Aug-96 11401 11675 11230 Sep-96 11587 11878 11443 Oct-96 11821 12142 11693 Nov-96 12016 12350 11895 Dec-96 11910 12235 11769 Jan-97 11805 12273 11824 Feb-97 11829 12303 11853 Mar-97 11705 12167 11708 Apr-97 11857 12349 11889 May-97 11959 12467 11983 Jun-97 12092 12615 12115 Jul-97 12403 12956 12417 Aug-97 12294 12846 12296 Sep-97 12465 13034 12472 Oct-97 12522 13223 12688 Nov-97 12557 13284 12682 Dec-97 12670 13418 12813 Jan-98 12833 13590 13019 Feb-98 12815 13580 12986 Mar-98 12861 13626 13034 Apr-98 12916 13697 13078 May-98 13031 13827 13217 Jun-98 13125 13944 13329 Jul-98 13147 13974 13333 Aug-98 13307 14201 13583 Sep-98 13601 14534 13874 Oct-98 13502 14457 13782 The graph assumes all dividends and distributions are reinvested at Net Asset Value. Notes: All Fund performance numbers represent past performance, and are no guarantee of future results. The Fund's share price and investment return will fluctuate, so that the value of an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns include change in share price and reinvestment of dividends and distributions, if any. Total return figures are provided in accordance with SEC guidelines for comparative purposes for prospective investors. Total Returns reflect certain voluntary fee waivers which may be terminated. If the waivers were not in place, total returns would be lower. 4 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS October 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- FIXED INCOME -- 86.8% - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES -- 5.5% - -------------------------------------------------------------------------------- Aames Mortgage Trust 6.59% due 6/15/24 $ 375 $ 381,735 Contimortgage Home Equity Loan 6.13% due 3/15/13 500 500,935 Green Tree Financial Corp. 6.71% due 8/15/29 550 537,883 8.05% due 10/15/27 1,500 1,632,645 IMC Home Equity Loan 6.16% due 5/20/14 1,000 1,004,320 PNC Mortgage Securities Corp. 6.392% due 10/25/13 200 195,563 ------------- 4,253,081 ------------- DOMESTIC CORPORATIONS -- 19.3% - -------------------------------------------------------------------------------- Associates Corp. N. A. 5.96% due 5/15/37 750 745,912 Atlantic City Electric Co. 7.01% due 8/23/02 560 591,018 BB&T Corp. 6.375% due 6/30/05 1,330 1,384,184 Century Tel Enterprises Inc. 6.30% due 1/15/08 320 326,736 Conseco Inc. 6.40% due 6/15/01 450 453,744 Dayton Hudson Corp. 5.95% due 6/15/00 225 228,199 Equitable Life Assurance 6.95% due 12/01/05 760 807,941 Ford Motor Co. 6.50% due 8/01/18 520 491,634 GTE Corp. 6.36% due 4/15/06 500 522,945 General Electric Capital Corp. 5.60% due 1/14/00 285 286,951 Hartford Financial Services Group Inc. 6.375% due 11/01/08 320 318,251 MCI Communications Corp. 6.125% due 4/15/12 480 490,824 Mattel Inc. 6.00% due 7/15/03 480 493,235 Merrill Lynch & Co., Inc. 6.00% due 7/15/05 265 264,944 National Rural Utilities 6.20% due 2/01/08 670 697,008 Norfolk Southern Corp. 6.95% due 5/01/02 1,050 1,096,378 Occidental Petroleum Corp. 6.40% due 4/01/03 400 401,128 Petroleum Geological Services 6.625% due 3/30/08 565 552,028 Philadelphia Electric Co. 6.625% due 3/01/03 670 699,473 7.125% due 9/01/02 125 132,133 Raytheon Co. 5.95% due 3/15/01 430 435,366 6.30% due 3/15/05 290 297,218 Sears Credit 5.25% due 10/16/08 820 814,555 Sony Corp. 6.125% due 3/04/03 350 357,861 Suntrust Banks Inc. 6.00% due 1/15/28 350 353,479 TCI Communications Inc. 6.875% due 2/15/06 375 401,006 USA Waste Services Inc. 6.50% due 12/15/02 650 667,192 Union Pacific Resources Group Inc. 6.50% due 5/15/05 220 218,882 Walt Disney Co. 6.75% due 3/30/06 270 291,181 ------------- 14,821,406 ------------- MORTGAGE OBLIGATIONS -- 26.7% - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 10.0% - -------------------------------------------------------------------------------- Asset Securitization Corp., Series 95 7.10% due 8/13/29 258 273,175 7.384% due 8/13/29 1,000 1,074,840 Asset Securitization Corp., Series 97 6.85% due 2/14/41 225 234,977 Commercial Mortgage Corp. 5.80% due 3/15/06 274 272,342 GMAC Commercial Mortgage Inc. 6.42% due 5/15/35 550 558,261 J.P. Morgan Commercial Mortgage Finance Corp. 6.37% due 1/15/30 249 254,469 Merrill Lynch Mortgage Co. 6.95% due 6/18/29 469 488,338 Morgan Stanley Capital Investment Inc. 6.44% due 11/15/02 350 358,722 5 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS Continued October 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- Nomura Asset Securitization Corp. 8.15% due 4/04/27 $1,000 $ 1,144,060 Norwest Asset Securities Corp. 6.75% due 11/25/27 2,000 2,016,980 Residential Asset Securitization Trust 7.00% due 2/25/08 271 272,650 Structured Asset Securities Corp. 6.79% due 10/15/34 704 733,348 ------------- 7,682,162 ------------- MORTGAGE BACKED SECURITIES/PASSTHROUGHS -- 14.4% - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 6.00% due 4/15/08 500 503,100 6.15% due 3/15/19 2,000 2,004,560 6.25% due 6/15/24 535 550,717 6.50% due 12/01/99 500 504,063 6.75% due 8/15/04 1,500 1,518,750 7.00% due 12/01/99 2,000 2,039,375 8.50% due 4/01/01 13 13,290 Federal National Mortgage Association 6.00% due 12/01/99 575 568,172 6.50% due 12/01/99 560 564,374 6.50% due 6/18/10 1,000 1,028,845 7.349% due 8/17/21 400 429,336 7.50% due 10/01/25 1,104 1,132,071 7.50% due 4/01/26 41 42,137 7.50% due 5/01/26 180 185,020 8.00% due 6/01/02 11 10,819 ------------- 11,094,629 ------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 2.3% - -------------------------------------------------------------------------------- 7.25% due 10/16/22 1,683 1,694,792 8.00% due 12/15/07 50 51,872 ------------- 1,746,664 ------------- TOTAL MORTGAGE OBLIGATIONS 20,523,455 ------------- YANKEE BONDS -- 1.9% - -------------------------------------------------------------------------------- Embotelladora Andina SA 7.00% due 10/01/07 55 44,997 Ericsson Telephone 6.75% due 2/12/02 325 345,022 Inter-American Development Bank 6.95% due 8/01/26 1,000 1,096,610 ------------- 1,486,629 ------------- UNITED STATES GOVERNMENT AND OTHER GOVERNMENT OBLIGATIONS -- 33.4% - -------------------------------------------------------------------------------- UNITED STATES TREASURY BONDS -- 10.6% 6.25% due 8/15/23 $2,500 $ 2,797,650 6.625% due 2/15/27 1,150 1,361,669 6.125% due 11/15/27 3,000 3,375,930 3.625% due 4/15/28 606 606,508 ------------- 8,141,757 ------------- UNITED STATES TREASURY NOTES -- 18.9% - -------------------------------------------------------------------------------- 6.00% due 6/30/99 4,800 4,847,232 5.625% due 4/30/00 580 590,510 6.625% due 6/30/01 2,665 2,816,559 5.75% due 11/30/02 495 519,438 5.25% due 8/15/03 320 333,901 5.875% due 2/15/04 185 198,037 6.875% due 5/15/06 3,000 3,434,520 6.50% due 5/31/02 1,000 1,068,910 6.50% due 10/15/06 355 398,211 5.625% due 5/15/08 290 312,611 ------------- 14,519,929 ------------- UNITED STATES AGENCY OBLIGATIONS -- 1.0% - -------------------------------------------------------------------------------- Tennessee Valley Authority 5.88% due 4/01/36 750 786,367 - -------------------------------------------------------------------------------- OTHER GOVERNMENT OBLIGATIONS -- 2.9% - -------------------------------------------------------------------------------- British Columbia Province 5.375% due 10/29/08 400 396,760 Canadian Government 5.25% due 11/05/08 350 348,292 Manitoba Province 5.50% due 10/01/08 910 906,023 Republic of Ireland 6.875% due 3/10/03 500 538,750 ------------- 2,189,825 ------------- TOTAL UNITED STATES GOVERNMENT & OTHER GOVERNMENT OBLIGATIONS 25,637,878 ------------- TOTAL FIXED INCOME (Identified Cost $65,030,784) 66,722,449 ------------- PREFERRED STOCK -- 0.8% - -------------------------------------------------------------------------------- Comed Financing I (Identified Cost $590,291) 23 582,012 ------------- 6 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS October 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT ISSUER (000'S OMITTED) VALUE - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS -- 16.3% - -------------------------------------------------------------------------------- FCC National Bank 5.68% due 6/03/99 $1,000 $ 999,607 United States Treasury Bills 4.14% due 12/24/98 210 208,723 4.68% due 12/24/98 8 7,945 4.72% due 12/24/98 30 29,792 Westdeutsche Landesbank Repurchase Agreement 5.35% due 11/2/98 proceeds at maturity $11,264,020 (collateralized by $10,540,000 U.S. Treasury Note 5.75% due 4/30/03; valued at $11,486,953) 11,259 11,259,000 ------------- TOTAL SHORT-TERM OBLIGATIONS (Identified Cost $12,505,067) 12,505,067 TOTAL INVESTMENTS (Identified Cost $78,126,142) 103.9% 79,809,528 OTHER ASSETS, LESS LIABILITIES (3.9) (3,021,164) ===== ------------- NET ASSETS 100.0% $76,788,364 ===== ============= See notes to financial statements 7 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998 ================================================================================ ASSETS: Investments, at value (Note 1A) (Identified Cost, $78,126,142) $79,809,528 Cash 759,150 Receivable for investments sold 335,135 Receivable for shares of beneficial interest sold 1,454,498 Interest receivable 893,522 - -------------------------------------------------------------------------------- Total assets 83,251,833 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 6,316,613 Payable for shares of beneficial interest repurchased 63,435 Payable to affiliate--Management fees (Note 2) 10,999 Accrued expenses 71,931 Income distribution payable 491 - -------------------------------------------------------------------------------- Total liabilities 6,463,469 - -------------------------------------------------------------------------------- NET ASSETS for 7,676,368 shares of beneficial interest outstanding $76,788,364 ================================================================================ NET ASSETS CONSIST OF: Paid-in capital $77,349,154 Accumulated net realized loss from investment transactions and futures contracts (2,244,176) Unrealized appreciation of investments 1,683,386 - -------------------------------------------------------------------------------- Total $76,788,364 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE OF BENEFICIAL INTEREST $10.00 ================================================================================ CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF OPERATIONS TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 1998 DECEMBER 31, (Note 1F) 1997 ================================================================================ INVESTMENT INCOME (Note 1B): $2,423,695 $2,683,236 - -------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 273,701 235,757 Distribution fees (Note 3) 97,750 58,940 Custody and fund accounting fees 47,061 74,350 Audit fees 28,733 29,350 Shareholder reports 23,244 29,695 Transfer agent fees 9,500 12,000 Trustees fees 13,752 15,261 Legal fees 14,484 17,147 Miscellaneous 11,425 6,613 Shareholder servicing agent fee (Note 4) -- 98,232 - -------------------------------------------------------------------------------- Total expenses 519,650 577,345 Less aggregate amounts waived by the Manager (Note 2) (165,498) (216,066) Less fees paid indirectly (Note 1I) (2,288) (7,637) - -------------------------------------------------------------------------------- Net expenses 351,864 353,642 - -------------------------------------------------------------------------------- Net investment income 2,071,831 2,329,594 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investment transactions 688,674 334,262 Net realized gain (loss) on futures transactions 54,644 (61,794) Net change in unrealized appreciation of investments and future contracts 662,088 649,983 Net realized and unrealized gain on investments and future contracts 1,405,406 922,451 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,477,237 $3,252,045 ================================================================================ See notes to financial statements 8 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS TEN MONTHS ENDED YEAR ENDED DECEMBER 31, OCTOBER 31, 1998 ----------------------- (Note1F) 1997 1996 ================================================================================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,071,831 $ 2,329,594 $ 2,655,675 Net realized gain (loss) from investments and futures transactions 743,318 272,468 (830,939) Net change in unrealized appreciation (depreciation) of investments and future contracts 662,088 649,983 (643,316) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,477,237 3,252,045 1,181,420 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (2,112,415) (2,338,323) (2,638,684) - -------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5): Net proceeds from sale of shares 45,904,926 595,327 1,467,543 Net asset value of shares issued to shareholders from reinvestment of distributions 2,110,978 2,335,328 2,602,603 Cost of shares repurchased (9,293,925) (11,061,426) (8,312,092) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from transactions in shares of beneficial interest 38,721,979 (8,130,771) (4,241,946) NET INCREASE (DECREASE) IN NET ASSETS 40,086,801 (7,217,049) (5,699,210) NET ASSETS: Beginning of period 36,701,563 43,918,612 49,617,822 - -------------------------------------------------------------------------------- End of period (including undistributed net investment income of $0, $26,955 and $35,684 respectively) $76,788,364 $36,701,563 $43,918,612 ================================================================================ See notes to financial statements 9 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO FINANCIAL HIGHLIGHTS
FOR THE PERIOD TEN MONTHS JUNE 25, 1993 ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT OCTOBER 31, 1998 ------------------------------ OF OPERATIONS) TO (Note 1F) 1997 1996 1995 1994 DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------- Net Asset Value, beginning of period $9.72 $9.48 $9.77 $8.91 $9.88 $10.00 - ------------------------------------------------------------------------------------------- Income From Operations: Net investment income 0.447 0.575 0.54 0.57 0.521 0.261 Net realized and unrealized gain (loss) on investments 0.272 0.239 (0.29) 0.86 (0.959) 0.037 - ------------------------------------------------------------------------------------------- Total from operations 0.719 0.814 0.25 1.43 (0.438) 0.298 - ------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.439) (0.574) (0.54) (0.57) (0.516) (0.261) In excess of net investment income -- -- -- -- -- (0.006) Net realized gain on investments -- -- -- -- (0.016) (0.151) - ------------------------------------------------------------------------------------------- Total distributions (0.439) (0.574) (0.54) (0.57) (0.532) (0.418) Net Asset Value, end of period $10.00 $9.72 $9.48 $9.77 $8.91 $9.88 - ------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $76,788 $36,702 $43,919 $49,618 $47,582 $61,183 Ratio of expenses to average net assets(A) 0.91% *0.92% 0.90% 0.90% 0.90% 0.90%* Ratio of expenses to average net assets after fees paid indirectly(A) 0.90%* 0.90% 0.90% 0.90% 0.90% 0.90%* Ratio of net investment income to average net assets 5.30%* 5.92% 5.72% 5.97% 5.52% 4.95%* Portfolio turnover 120% 146% 495% 396% 291% 103% Total return 7.57%** 8.87% 2.73% 16.45% (4.48)% 2.99%** Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated the net investment income per share and the ratios would have been as follows: Net investment income per share $0.412 $0.522 $0.50 $0.52 $0.475 $0.236 RATIOS: Expenses to average net assets 1.33%* 1.47% 1.39% 1.42% 1.39% 1.38%* Net investment income to average net assets 4.88%* 5.37% 5.23% 5.45% 5.03% 4.47%* - ----------------------------------------------------------------------------------------
* Annualized ** Not Annualized (A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been adjusted to reflect a change in reporting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the effect of any expense offset arrangements with its service providers. The expense ratios for each of the periods ended before December 31, 1995 have not been adjusted to reflect this change. See notes to financial statements 10 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Intermediate Income Portfolio (formerly Landmark Intermediate Income Fund) (the "Fund") is a separate diversified series of CitiFunds Fixed Income Trust (the "Trust") which is organized as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Investment Manager of the Fund is Citibank, N.A. ("Citibank"). CFBDS, Inc. ("CFBDS") (formerly Landmark Funds Broker-Dealer Services, Inc.) acts as the Fund's Sub-Administrator and Distributor. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The significant accounting policies consistently followed by the Fund are in conformity with generally accepted accounting principles and are as follows: A. INVESTMENT SECURITY VALUATIONS Debt securities (other than short-term obligations maturing in 60 days or less) are valued on the basis of valuations furnished by a pricing service, which takes into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of the securities. Short-term obligations (maturing in 60 days or less) are valued at amortized cost, which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees. B. INCOME Interest income is determined on the basis of interest accrued and discount earned, adjusted for amortization of premium or discount on long-term debt securities when required for Federal income tax purposes. Gain and loss from principal paydowns are recorded as ordinary income. C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its taxable income, including any net realized gain on investment transactions. Accordingly, no provision for federal income or excise tax is necessary. At October 31, 1998, the Fund, for federal income tax purposes, had a capital loss carryover of $2,218,509 of which $1,142,935 will expire on October 31, 2002 and $1,075,574 which will expire on October 31, 2004. Such capital loss carryover will reduce the Fund's taxable income arising from future net realized gain on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. 11 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) D. EXPENSES The Fund bears all costs of its operations other than expenses specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with respect to any two or more funds or series are allocated in proportion to the average net assets of each fund, except when allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. E. DISTRIBUTIONS The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains. F. CHANGE IN FISCAL YEAR END During fiscal year 1998, the Fund changed its fiscal year end from December 31 to October 31. G. Repurchase Agreements It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodial bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of the repurchase agreement's underlying investments to ensure the existence of a proper level of collateral. H. FUTURES CONTRACTS The Fund may engage in futures transactions. The Fund may use futures contracts in order to protect the Fund from fluctuations in interest rates without actually buying or selling debt securities, or to manage the effective maturity or duration of fixed income securities in the Fund's portfolio in an effort to reduce potential losses or enhance potential gains. Buying futures contracts tends to increase the Fund's exposure to the underlying instrument. Selling futures contracts tends to either decrease the Fund's exposure to the underlying instrument, or to hedge other fund investments. Upon entering into a futures contract, the Fund is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin". Subsequent payments ("variation margin") are made or received by the Fund each day, depending on the daily fluctuation of the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued at the settlement price established by the board of trade or exchange on which they are traded. There are several risks in connection with the use of futures contracts as a hedging device. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk the 12 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Futures contracts involve, to varying degrees, risk of loss in excess of the futures variation margin reflected in the Statement of Assets and Liabilities. H. OTHER Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis. Distributions to shareholders and shares issuable to shareholders electing to receive distributions in shares are recorded on the ex-dividend date. I. FEES PAID INDIRECTLY The Fund's custodian bank calculates its fees based on the Fund's average daily net assets. The fee is reduced according to a fee arrangement, which provides for custody fees to be reduced based on a formula developed to measure the value of cash deposited with the custodian by the Fund. This amount is shown as a reduction of expense on the Statement of Operations. 2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's business affairs, and has a Management Agreement with the Fund. Citibank also provides certain administrative services to the Fund. These administrative services include providing general office facilities and supervising the overall administration of the Fund. CFBDS acts as Sub-Administrator and performs such duties and receives such compensation from Citibank as from time to time is agreed to by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citigroup, Inc. Citigroup, Inc. was formed as a result of the merger of Citicorp and Travelers Group, Inc. which was completed on October 8, 1998. The management fees paid to Citibank, are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.70% of the Funds' average daily net assets. The management fee amounted to $273,701 of which $165,498 was voluntarily waived for the ten months ended October 31, 1998. Prior to January 1, 1998, such services were provided under separate investment advisory and administrative agreements. The investment advisory fee was computed at the annual rate of 0.35% of average daily net assets, which amounted to $137,525 of which $82,010 was voluntarily waived for the year ended December 31, 1997. The administrative fee was computed at an annual rate of 0.25% of average daily net assets, which amounted to $98,232 of which $75,116 was voluntarily waived for the year ended December 31, 1997 (Note 5). The Trust pays no compensation directly to any Trustee or any other officer who is affiliated with the Sub-Administrator, all of whom receive remuneration for their services to the Trust from the Sub-Administrator or its affiliates. 3. DISTRIBUTION FEES The Fund has adopted a Service Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, in which the Fund pays fees for distribution, sales and marketing and shareholder services at an annual rate not to exceed 0.25% and 0.15%, respectively for the ten months ended October 31, 1998 and the year ended December 31, 1997 of the Fund's average daily net assets. The distribution fees amounted to $97,750 for the ten months 13 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) ended October 31, 1998 and $58,940 all of which was voluntarily waived for the year ended December 31, 1997. (Note 5). 4. SHAREHOLDER SERVICING AGENTS FEE -- The Fund had entered into shareholder servicing agreements with each Shareholder Servicing Agent pursuant to which the Shareholder Servicing Agent acts as an agent for its customers and provides other related services. For their services, each Shareholder Servicing Agent received fees from the Fund, on an annualized basis, equal to 0.25% of the average daily net assets of the Fund represented by shares owned during the period by investors for whom such Shareholder Servicing Agent maintained a servicing relationship. Shareholder Servicing Agents' fees amounted to $98,232 for the year ended December 31, 1997 (Note 5). 5. OTHER -- At a Special Meeting on October 24, 1997, the Shareholders of the Fund approved a Management Agreement with Citibank, to provide administrative services, and a new Rule 12b-1 Service Plan, both effective January 1, 1998. These new agreements terminated the Fund's existing Administration, Distribution and Service Plan Agreements. 6. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of securities, other than short-term obligations, aggregated $84,626,936 and $53,919,012, respectively for the ten months ended October 31, 1998. 7. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares of beneficial interest were as follows: 14 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (Continued) TEN MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, OCTOBER 31, 1998 1997 1996 ================================================================================ Shares sold 4,626,775 62,642 155,635 Shares issued to shareholders from reinvestment of distributions 214,180 244,817 276,737 Shares repurchased (940,430) (1,162,555) (881,410) - -------------------------------------------------------------------------------- Net increase (decrease) 3,900,525 (855,096) (449,038) - -------------------------------------------------------------------------------- 8. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investment securities owned at October 31, 1998, as computed on a federal income tax basis, are as follows: Aggregate cost $78,151,808 - -------------------------------------------------------------------------------- Gross unrealized appreciation $1,837,262 Gross unrealized depreciation (179,542) - -------------------------------------------------------------------------------- Net unrealized appreciation $1,657,720 - -------------------------------------------------------------------------------- 9. LINE OF CREDIT The Fund, along with other CitiFunds entered into an ongoing agreement with a bank which allows the Funds collectively to borrow up to $60 million for temporary or emergency purposes. Interest on borrowings, if any, is charged to the specific fund executing the borrowing at the base rate of the bank. The line of credit requires a quarterly payment of a commitment fee based on the average daily unused portion of the line of credit. For the ten months ended October 31, 1998 and for the year ended December 31, 1997, the commitment fees allocated to the Fund were $153 and $165, respectively. Since the line of credit was established there have been no borrowings. 15 CITIFUNDS INTERMEDIATE INCOME PORTFOLIO INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND SHAREHOLDERS OF CITIFUNDS INTERMEDIATE INCOME PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of CitiFunds Intermediate Income Portfolio (the "Fund"), a separate series of CitiFunds Fixed Income Trust (the "Trust") (a Massachusetts business trust), as of October 31, 1998, the related statement of operations for the ten months ended October 31, 1998 and the year ended December 31, 1997, the statement of changes in net assets for the ten months ended October 31, 1998 and the years ended December 31, 1997 and 1996, and the financial highlights for the ten months ended October 31, 1998 and for each of the years in the five-year period ended December 31, 1997. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1998, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of CitiFunds Intermediate Income Portfolio at October 31, 1998, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts December 14, 1998 16 TRUSTEES AND OFFICERS C. Oscar Morong, Jr., CHAIRMAN Philip W. Coolidge*, PRESIDENT Riley C. Gilley Diana R. Harrington Susan B. Kerley Walter E. Robb, III E. Kirby Warren William S. Woods, Jr. SECRETARY Linda T. Gibson* TREASURER John R. Elder* *AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR INVESTMENT MANAGER Citibank, N.A. 153 East 53rd Street, New York, NY 10043 DISTRIBUTOR CFBDS, Inc. 21 Milk Street, 5th Floor Boston, MA 02109 (617) 423-1679 TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110 AUDITORS Deloitte & Touche LLP 125 Summer Street, Boston, MA 02110 LEGAL COUNSEL Bingham Dana LLP 150 Federal Street, Boston, MA 02110 THE CITIFUNDS FAMILY LARGE CAP STOCKS o CitiFunds Growth & Income Portfolio o CitiFunds Large Cap Growth Portfolio SMALL CAP STOCKS o CitiFunds Small Cap Growth Portfolio o CitiFunds Small Cap Value Portfolio INTERNATIONAL STOCKS o CitiFunds International Growth & Income Portfolio o CitiFunds International Growth Portfolio GROWTH WITH INCOME o CitiFunds Balanced Portfolio BONDS o CitiFunds Intermediate Income Portfolio o CitiFunds Short-Term U.S. Government Income Portfolio o CitiFunds New York Tax Free Income Portfolio o CitiFunds California Tax Free Income Portfolio o CitiFunds National Tax Free Income Portfolio MONEY MARKETS o CitiFunds Cash Reserves o CitiFunds U.S. Treasury Reserves o CitiFunds Tax Free Reserves o CitiFunds New York Tax Free Reserves o CitiFunds California Tax Free Reserves o CitiFunds Connecticut Tax Free Reserves This report is prepared for the information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. For more information contact your Service Agent or call 1-800-625-4554 CitiFunds are made available by CFBDS, Inc. as distributor. (C)1998 Citicorp [Recycle Logo] Printed on recycled paper CFA/INI/1098 -----END PRIVACY-ENHANCED MESSAGE-----